Key takeaways from Conference cum Roadshow on Karnataka’s Mining Sector

Stability is slowly returning to the iron ore mining industry in Karnataka after a period of deadlock following the Supreme Court’s landmark verdict in mid-2022 lifting restrictions on sales and exports of iron ore from the state. Experts at SteelMint’s Conference cum Roadshow on Karnataka’s Mining Sector held from 19-21 January, 2023, said that iron ore supplies in the state are expected to rise in the coming time, while e-auctions still remain the preferred mode of sales for transparent price discovery. Below are highlights from the conference:

• India’s leading iron ore miner, NMDC, has floated EoI for empanelment of long-term agreement (LTA) customers in Karnataka after the apex court paved the way for direct sales. 90% of sales will be through LTAs and the remaining 10% through e-auctions. This format is operational in Chhattisgarh, too. However, prices will not be determined by results of e-auctions and will be decided as per NMDC’s fixed set of parameters.
• NMDC’s iron ore production in Karnataka is expected to be around 12 million tonnes (mnt) in FY23. Production in FY22 was 12.2 mnt, as per SteelMint data. Therefore, around 11 mnt of sales will be through LTAs and the rest through e-auctions. The PSU miner produced over 40 mnt of iron ore in 2022. The company targets to produce 17 mnt from its Karnataka mines by FY30 from 12 mnt at present.
• Of the 24 iron ore mines auctioned in Karnataka since 2016, only 11 have been operationalised till date. The key challenge for miners is the extreme delay in securing statutory clearances, especially forest clearance along with delay in inspections by the DMG and Forest Department.
• During the previous Monitoring Committee (MC) regime, inspection of Fe% used to happen prior to e-auctions but now it happens after e-auctions leading to delay in declaration of base price. Lessees are at the discretion of DMG and FD.
• The lack of extensive exploration has failed to unlock rich reserves resulting in relatively low-reserve blocks being auctioned. Also, the steep stamp duty being levied for mining lease and forest clearance of the auctioned blocks is impacting interest in mineral auctions. These factors cloud the supply outlook in the state despite the Supreme Court order raising the production ceiling from Bellary and Tumkur districts from 35 mnt to 50 mnt.
• Production may not readily reach 50 mnt due to the slow pace of operationalisation of the auctioned leases. Uncertainty prevails as to which mines would be allowed to expand their EC limits and by how much given the 50 mnt ceiling. SteelMint estimates Karnataka’s iron ore output to fall to around 36 mnt in the ongoing fiscal from over 40 mnt in FY22.
• Steel major JSW Steel is expanding crude steelmaking capacity at Vijaynagar to over 17 mnt by the next fiscal. The state’s steel and pellet-making capacity is growing, too. Iron ore supply is not expected to outpace rising demand in the state for the time being.

  

• Prices may remain supported, therefore, amid the overall positive outlook post rollback of export duty. Although disparity in prices have been observed, the easing of sales restrictions is expected to solve the decades-long problem of iron ore prices remaining artificially low in the state.
• As more mines are auctioned and the successfully auctioned mines gradually enter the production phase, generation of higher volumes of fines will augment beneficiation and pelletisation activities.
• Despite the withdrawal of export duty on iron ore below Fe58%, firm domestic demand may limit export volumes. SteelMint expects iron ore exports from Karnataka to be around 0.5-1 mnt in the ongoing fiscal.
• Global iron ore prices in CY23 are expected to remain rangebound. Benchmark Fe62% Australian fines averaged $121/t CFR China in CY22.
  
• Strong demand and higher domestic realisations may limit pellet exports too, although export prospects are bright in the mid-to long-term, especially from China and Oman. Pellet capacities in Karnataka may rise by 9 mnt from the current 27.7 mnt on strong domestic demand.
• MSPL is increasing capacity to 3 mnt. Minera Steel and Power is also raising capacity; Vedanta has invited an EoI for establishing a 3 mnt/year pellet plant in the state supported by captive iron ore supply; Resources Pellets Concentrates Private Ltd. has received EC for setting up a 3.2 mnt/year pellet plant; JSW Steel’s present pellet plant capacity in Vijaynagar is 17.2 mnt. The company increased its capacity by about 8 mnt from 9.2 mnt previously.