Odisha posted a 5% m-o-m gain in iron ore output to 6.5mn t in June on easing of coronavirus-related mining and logistical restrictions. With auctioned leases resuming operations gradually, output is likely to pick up further in coming months.
Output, however, continued its sharp y-o-y decline, falling by 45% from 11.73 mn t in June 2019, as auctioned mines mines were yet to start operations, according to SteelMint data. Output in April and May had fallen by 57% and 47% after 19 iron ore mining leases expired on 31 March, 2020. Besides, a month-long lockdown also hampered mining and evacuation of ores.
Steel and iron ore demand has ticked higher with resumption of manufacturing and construction works in May while demand for Indian iron ore fines and pellet remains robust in the Chinese market.
Of the 19 iron ore mines (including Badampahar) auctioned this year, 13 have been granted mining leases with three companies – Serajuddin, AMNS and JSW Steel starting production. These three companies have mining leases with approved capacity of 45-50mtpa.
AMNS and JSW Steel will use the mined ores for their own steelmaking operations which will reduce spot ore availability and could support prices if demand spikes in the near-term.
Two of the auctioned mines – R.P. Sao and Jiling – are in litigation, with hearing scheduled for 27 July, putting around 12 mnt pa ore capacity out of the market for now.
Major Odisha miner Sarda’s 4mnt pa approved mine capacity will be put up for auction next year, which could prompt the miner to produce at close to allowed capacity this year.
Odisha is also planning to put a mix of smaller developed mines and virgin blocks for auction this year, but these may not make much of a dent in output in the next 6-12 months.
SteelMint expects around 10-15% drop in Odisha’s iron ore output to 120-130mn t in 2020 compared with a 145mn t production in 2019. While any loss in output is supportive of prices, these gains are likely to be limited as domestic demand will remain muted amid concerns of decline in GDP this year.
There is also concern about the financial health and operational ability of merchant mines acquired in the current round of auctions, given these companies have to pay out 100-155pc premium on monthly average sales prices of various ore grades to the state government, apart from statutory royalty and tax payments. Miners’ ability to pass on higher costs to buyers will hinge on the health of Indian steel sector, which has been dealt a severe blow by the coronavirus pandemic.
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