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India mine shutdowns boost iron ore lump prices

30 Jan 2018 07:45 GMT
India mine shutdowns boost iron ore lump prices

Singapore, 30 January (Argus) — Six iron ore mines in the eastern Indian state of Odisha have been closed this month, removing 23mn t/yr of capacity from the market and pushing domestic lump prices higher.

The six mines in Odisha, India's largest iron ore producing state, were ordered to halt production from 1 January after they failed to pay fines imposed by the Supreme Court last year.

The penalties were imposed for excessive mining by several companies, including large steelmakers such as Tata Steel, from the 2000-01 to 2009-10 financial years that run from April-March. The Odisha government has so far collected penalties of around $1.25bn from mining companies. There are currently 49 operational mines in Odisha.

The fate of the six mines will be decided by the Supreme Court soon, with its decision subject to widespread speculation. Most of the mines are likely to pay the penalties and would be allowed by the court to resume operations once those payments are received, said domestic ratings agency ICRA. The court may also consider auctioning some or all of these mines, an Odisha government official said.

Private-sector mining firms and state-controlled producer NMDC have increased domestic lump prices by 400-500 rupees/t ($6.28-7.85/t) as a result of the mine closures, which is expected to raise steelmaking costs by Rs800-1,000/t, ICRA said. NMDC, India's largest iron ore producer, increased its 65.5pc Fe lump price by 19pc from a month earlier to Rs3,100/t in January.

Private-sector steel producer JSW Steel is pushing for state-controlled companies to take over the six mines and operate them until a final decision is reached. The iron ore shortages are creating a disastrous situation that may lead to smaller steel companies shutting down, JSW Steel chairman Sajjan Jindal said.

Steel companies may have to increase prices soon as they cannot absorb the additional burden of higher lump prices, Jindal said. JSW is India's second-largest steel producer after state-controlled Sail.

Coastal mills may increase imports of high-grade lump if the shutdowns are prolonged. Mills such as JSW Steel's Dolvi plant and fellow private-sector firm Essar Steel's Hazira plant, both on the west coast, usually import high-grade ore to boost productivity and meet shortfalls in domestic supplies.

But iron ore production in Odisha is unlikely to fall in January-March despite the mine shutdowns, the state government official said. Other mines are ramping up output to sell as much as they can at the higher prices, which is likely to more than cover any shortfall. Odisha is on track to produce around 100mn t iron ore in the 2017-18 financial year ending 31 March, largely stable from production in 2016-17.

The rally in prices will peter out in April-June if the mines are reopened soon, ICRA said.