Odisha, India nears completion of iron ore auctions

India's eastern state of Odisha has notified winning bidders for 88pc of iron ore mining leases that will expire on 31 March, likely staving off widely-anticipated supply shortages this year.

Odisha, the country's largest iron ore producer, has found buyers for 21 of the 24 operational mines whose leases are expiring while auctions for three remaining mines will be concluded soon, a senior official of Odisha's mines ministry told Argus.

Indian laws mandate auction of privately-owned mining leases held by merchant mining firms. The 24 leases that were auctioned off in Odisha accounted for around 60mn t output in the 2018-19 fiscal year ended 31 March 2019, less than a third of India's 207mn t total output in 2018-19.

Inability to restart these 24 mines quickly could increase domestic iron ore prices and expand import volumes in the 2020-21 fiscal year, further pressuring profit margins of steelmakers whose profits in October-December have already fallen from sluggish domestic steel demand.

The formalities regarding the grant of leases are expected to be wrapped up before the end of March and allow new leaseholders to restart operations quickly, said the official, adding that the government is facilitating the process of the hand over of leases. Delhi recently amended the mining law to allow mines to start operations in existing mines without seeking fresh regulatory approvals.

Iron ore output is unlikely to be affected significantly as new leaseholders have been made to commit a production rate of at least 80pc of the total output of the mine in 2019-20. The Odisha government will also soon issue notifications on allowing the sale of iron ore stocks mined by the current leaseholders, said the official.

The federal law mandates a seven-month grace period after lease expiry for former leaseholders to clear stocks.

India's second-largest steelmaker JSW Steel has bagged four mines, more than any other company, of the 21 mines auctioned so far. JSW's winning bids include India's largest functional iron ore mine Nuagaon. JSW's four mines have resources that exceed 1bn t. AMNS India (formerly Essar Steel) is the only other major integrated steelmaker to cast a winning bid, taking over the lease of Thakurani mines. Private sector players Tata Steel and Jindal Steel did not win any bids, while state-run companies did not participate in these auctions. Most of the other leases were won by smaller pig iron producers and merchant mining firms.

There has been speculation that high-priced bids at these auctions could sharply raise domestic iron ore prices this year. "Obviously whoever bid at these prices applied some logic, but we certainly did not want to bid at these prices," said Tata Steel managing director TV Narendran.

JSW Steel has bid to pay 95-132pc of the average monthly price of iron ore in Odisha for the 20-year period of the lease. The average monthly prices are published by the state-run Indian bureau of mines.

By Prasenjit Bhattacharya