~ By VIVEK N NATH
Minerals are exhaustible resources. The grade of any mineral is likely to go down over a period of time when the resources deplete. Historically, merchant iron ore mining started with NMDC’s operations way back in 1968 and exports of iron ore lumps with a guaranteed base of Fe65.50% to Japan. NMDC commenced its iron ore despatches to domestic customers like VSP and other gas-based sponge iron producers with lump supplies guaranteed at base Fe65.50%, DR CLO at Fe67% and fines at Fe64.5%. While NMDC continues its exports of lumps and fines with guaranteed Fe content of 65%, the same for fines to domestic customers has been progressively brought down to 64%.
Traditionally, in Odisha and Karnataka, the base Fe content of iron ore supplies has been ranging at around 63-63.5% guaranteed, while exports of iron ore with Fe content above 64% is being canalised through MSTC.
Of late, we are witnessing an unprecedented scenario, particularly in the Odisha sector, in which the guaranteed Fe content being offered by merchant miners is at 62% and, in some cases, is as low as 60%. The number of merchant miners in Odisha has also reduced, with majority being captive producers today. Even OMC, which used to offer fines guaranteed at Fe62%, is now offering the same at Fe60%.
The question that comes to mind now is whether a new norm is being set or is it a temporary aberration which is going to be resolved in due course since Indian pellets, sponge iron and steel producers are not geared up to consume this grade of iron ore technologically?
Scenario in Other Iron Ore Zones
What is happening in other iron ore zones of India?
As far as the state of Chhattisgarh is concerned, NMDC being the sole merchant miner here, it is continuing to supply fines of a minimum grade of Fe64% while lumps continue to be at a guaranteed Fe65.50%.
Where the Karnataka sector is concerned, a cursory look at the iron ore lots being offered reveals that very few miners are offering Fe62-63% and it appears that the material is being offered just on “as is where is” basis with little concern for maintaining the grade. Anything above Fe 45% is on sale.
As far as captive producers are concerned, they would certainly mine the required higher grade of 63%. There is no information that the miners need to reduce the guaranteed grade to get to their production level.
Factors Governing Odisha Trend
The iron ore market has shifted from commercial to captive, as larger steel plants opted for raw material security to avoid uncertainty over its availability and fluctuation in prices. However, even after acquiring the mines, many new lessees have not started production. There is the issue of stacking, which results in payment of higher royalty, as well as reassessment of high bid premiums, litigation etc which have severely impacted iron ore production and its availability from Odisha. Finally, the Odisha government has sprung into action by revoking the preferred bidder status for three iron ore deposits, namely Guali (JSPL), Jilling-Langalota (Shyam Ores) and Nadidih (Vishal LPG).
Primarily, it is low production that has qualitatively affected downward the offered grade of iron ore, particularly in Odisha.
Secondly, the export prices are very high for low grade fines. Therefore, the merchant miners are now more inclined towards digging out lower grade of fines and exporting the same. So, it is basically an export prices driven scenario. The moment iron ore prices reduce to below USD 100 per tonne internationally to what they used to be earlier, then the current situation will ease. But, yes, till the prices are above USD 120/tonne range, the market will continue to witness this scenario. Miners will be inclined not to supply to domestic customers, blend the ore with lower grade fines and export. The moment international prices come down, this scenario will ease in the domestic market.
There is no indication from the government on any impending cap on exports. Exports will stay robust because of high Chinese demand. There is also restriction on supply from Australia and Brazil. So, prices are not expected to come down in international markets in the near term and thus the exports market is expected to continue to remain high at least for the next quarter. And that would keep on putting pressure on domestic users of the Odisha iron ore sold by merchant miners. The steel mills, therefore, will continue to put emphasis on their captive production to get the requisite grade for their mills.
In anticipation of a vaccine-related economic recovery across the world, Chinese steel mills are unlikely to let up on building stocks of iron ore. A December landslide at a mine owned by Brazil’s Vale and the perennial fear of adverse weather in Australia in the first quarter, that could disrupt operation of mines and ports, should keep iron ore prices elevated.
For pellet plants which have beneficiation facilities, the downslide in the Fe content in iron ore supplies can be managed. A few pellet producers are compelled to import higher grades of iron ore concentrate and blend with the Odisha ore to get the desired grade for pellets. While it is a costly affair importing Fe66% grade iron ore concentrate from Russia, Ukraine and Australia, presently, this is the only option available for Indian steel producers dependent on Odisha merchant miners. Imports of lump ore from South Africa are also being reported recently by Chennai-based sponge iron producers.
The author is Section Head, Raw Materials, AM/NS India
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