Sail allowed to sell iron ore in Indian market

India's state-controlled Sail has been allowed to sell around 25pc of its annual iron ore production from its captive mines for two years, aimed at minimising supply disruptions expected by the expiry of several merchant mining leases on 31 March next year.

Sail for the current fiscal year 2019-20 that started 1 April will be allowed to sell 7mn t of iron ore from its mines in the states of Jharkhand, Odisha and Chhattisgarh. The 25pc quota will be calculated based on the production in the previous fiscal year.

Sail, India's largest steel producer and second-largest iron ore producer, will also be able to sell around 70mn t of stocks of low-grade iron ore fines and lump.

Indian steel producers are not allowed to sell ore from captive mines. The exemption for Sail will not be extended to other captive iron ore producers such as private-sector firms Tata Steel and Jindal Steel for now.

India's steel ministry has estimated a shortfall of around 60mn t of iron ore in 2020-21 as a result of the expiry of leases, primarily in the main producing states of Odisha and Karnataka. India produced 210mn t of iron ore in 2018-19 and is expected to produce around 225mn t in 2019-20.

There will be sufficient takers for Sail's 7mn t of iron ore sales this year as most of these are expected to be of a medium and high grade, which are typically used in the furnace burden by Indian steel mills. But Sail is unlikely to find many domestic buyers for its 70mn t of low-grade stocks, which are usually exported, unless Sail beneficiates or pelletises these stocks to a higher grade before selling.

Higher iron ore imports, sale of large stocks with merchant mining companies and higher output by India's largest producer state-controlled NMDC are likely to be some of the other ways of meeting the supply crunch. But mills and the government are uneasy about higher iron ore imports as international prices are much higher than domestic prices. This will erode already thin profit margins of domestic mills further, while Delhi does not want higher outgoings of foreign exchange as economic growth slows.

The decision to allow commercial sales from captive mines is a timely initiative but the need now is for Sail to do efficient, quality mining along the lines of NMDC, said former steel secretary and Jindal Steel director Aruna Sharma.

"Ensuring raw material security for Indian steel industry has been at the top of our agenda," said steel minister Dharmendra Pradhan. "Our government has taken several efforts towards this and the orders passed by the ministry of mines is an important step in this direction."