India: Odisha revises OMC’s long-term linkage policy on rising output

On the back of increased production and in lieu of investments that Odisha’s rich mines have attracted, the state government has decided to increase Odisha Mining Corporation’s supply to downstream players.

OMC’s “long-term linkages” have been extremely important to steelmakers and ferro chrome players with no captive mines. Its importance to raw material security of these industries has only grown with the share of merchant mines shrinking after the introduction of the auction regime.

“In order to provide the impetus for conversion of primary metal to downstream finished products, it has become even more critical now to ensure raw material security to important metals downstream and ancillary units,” says the government’s notification accessed by SteelMint.

A point to note is that traders will henceforth only be allowed to participate in auctions of material ignored by end-users.

Acknowledging OMC’s huge jump in production of iron ore, bauxite and chromite, from 17.12 million tonnes (mnt) in FY21 to 31.73 mnt in FY22, a growth achieved from existing mines and new mines reserved for the PSU which has set a target of 50 mnt by FY’25 for itself, the new notification supersedes the 2014 linkage policy. It will be applicable for five years with provisions for annual revisions and allows:

• Downstream units within the state who chose to spend money on evacuation systems, say slurry pipelines linked to OMC’s mines, to enter into direct negotiations with the state miner. This should tie up well for example with the proposed beneficiation project of Sompuri, a JV between Adani and Thriveni Earthmovers, neither of who have an iron ore mine in the state today.
• The quantum will be decided by the “allotment committee” of government officials and after deduction of mineral capacity, if any of the buyer, and the amount he may already be buying from other mines in the state.
• OMC can dispose the remaining material as it pleases, including exporting it directly to overseas buyers.

Iron ore

• Not less than 50% and not more than 80% of OMC’s iron ore production will be offered under long-term linkages. The exact amount decided by industry demand of state based end users, taking into account OMCs production and the evacuation capacities of its mines.
• Blast furnace and DRI, and already running integrated steel plants of the state will get priority, a decision left to the allotment committee.
• The price will be decided by the remaining stock’s auction. State-based industries with long term linkages can also participate in these auctions.

Chromite

The same applies to chromite, with 80% of its production being set aside for long term buyers.

Bauxite

OMC is the sole merchant producer of bauxite, a mineral that Odisha has the lion’s share of. It is yet to auction a bauxite mine successfully but that hasn’t dissuaded Adani from announcing a INR 41,653 crore investment in an aluminium refinery in the southern district of Rayagada, heating up competition for Vedanta.

As with chromite, it is reserving 80% of production for long-term linkages. The floor price for the auction of the remaining material will be decided as per Rule 45 of the Mineral Concession Rules 2016.