The Directorate of Mines, Government of Odisha, emailed a batch of official letters on 21st Aug’20 asking new lessees/successful bidders of predominately iron ore, but also manganese and chromite, mines in Odisha auctioned earlier this year to “ensure a minimum despatch of 80%of the average of the annual production of the two preceding years on a pro rata basis” as per the revenue sharing methodology under the new auctions regime of the Ministry of Mines.
The move is being viewed as an emergency response by the government to kick-start operations at the newly auctioned mines at the earliest to address the issue of acute iron ore supply crunch in the market.
Minimum production requirement
The letters were despatched to JSW Steel, which won the Nuagaon, Narayanposhi, Ganua and Jajang iron ore blocks; Serajuddin& Co. which retained the Balda iron ore block; Kashvi Group which bagged the Siljora-Kalimatiblock; Yazdani & Co which won the Kalamong iron ore and manganese block; GhanashyamMisra& Sons which acquired the Gorumahisani iron ore block; PatnaikMinerals which successfully bid for the Mahulsukha iron ore and manganese block; Narbheram Power & Steel which bagged the Roida-II iron ore block; and Tata Steel Mining (formerly TS Alloys) which successfully bid for the Kamarda, Saruabil and Sukindachromite blocks.
The Letters of Intent (LoI) for these mines were issued by the government in Mar’20. Although operations at JSW’s newly acquired mines have commenced, as reported by SteelMint recently, the production figures would not be available till the end of this month. For the rest of the iron ore mines on the list, production is yet to commence.
As per the Minerals Concession Rules, 2016, and the terms and conditions of the Mine Development &Production Agreement (MDPA) signed by the successful bidders in end-Jun’20, it is binding on the new lessees to abide by the “minimum production requirement” of 80% of the average mineral production from auctioned mines for the last two years as fixed by the state government.
Supply squeeze & closure threat
The despatch issued by Odisha’s Director of Mines assumes significance in the backdrop of iron ore paucity subsequent to the Odisha auctions held earlier this year that threatens the raw materials security of sponge iron, pellets and steel producers.
As per SteelMint reports, while iron ore production from mines in Odisha in Q1 FY20 was 19.22 mn t, production dropped to an abysmal 0.2 mn t in the same period in FY21. With a view the fact that the mines auctioned in Jan & Feb’20 collectively constitute close to 50% of Odisha’s annual iron ore capacity, the target production in Q1 FY21 should have been 15.4 mn t, considering that the newly auctioned mines adhered to the clause mandating at least 80% of last year’s production.
However, only five of the 19 mines auctioned have started operations and that too largely for captive use such as JSW Steel and AM/NS.
With over 90 mn t of capacity auctioned in 2020, anticipated monthly production should have been 4.2 mn t.
Acute supply tightness, and persistent price hikes by both NMDC and merchant miners, have triggered an expected backlash from steel and pellet producers who are urging the Odisha government to ensure adequate supply from the newly auctioned mines by facilitating immediate commencement of operations by the new lessees and re-auctioning of mines for which payments are yet to be made.
In such a situation, downstream players are heavily reliant on unsold stocks lying with the old lessees that have to be cleared by 30th Sept’20.
As there was an apprehension previously that the new lessees could manipulate iron ore supply into the market in a bid to artificially boost prices, there is likewise an apprehension today that supply squeeze after Sept’20 – coupled with stiff prices in a season of buoyant demand post-lockdown – could result in scores of downstream facilities being rendered unviable thereby triggering widespread closures.
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