Many might not have noticed, but there is a very dark cloud hanging over the iron ore industry. Just when legal and environmental hurdles for resumption of exports are being cleared, a slump in international prices of ore has come as a setback. The result is that 5.52 million tonnes ore that was e-auctioned at a price higher that the international market is lying at various jetties in the state. The government may have earned revenue from the sale, but the move has failed to kickstart the industry. Over the past one year, the price of 58 percent iron ore fines has crashed from $80 per tonne to $40. Even a cut in export duty from 30 to 10 percent has failed to make this large chunk of e-auctioned ore viable for sale. It might be recalled that the first four e-auctions saw good participation from local steel mills, sponge iron plants and exporters. The fifth, which was held in November last year, did not evoke the same response. Of the 2.3 million tonnes put up for sale only 0.699 million tonnes was sold as the price was benchmarked above that in the international market.
The stress of low iron ore prices is being felt the world over. Iran for instance, which used to export 20 million tonnes and was the fourth top supplier to China, has decided to cut royalties to give miners a chance, even though it has taken a revenue hit from low crude prices. Prior to reducing export duty, miners had to pay nearly 60 per cent of their earnings as tax and royalty to the state and central governments. This was sustainable as long as international prices were high. Low prices have already hit the export of e-auctioned ore and could delay re-start of mining in the state.
Restart of the industry should be a top priority for the government or else it will have to deal with unrest for another long year. It has, thus far, managed to calm the interiors buy doling out cash to families affected by closure of mines. This, at best, is a short term measure and would have worked for a longer period if the state had sufficient finances, which is not the case. It had to borrow nearly Rs 2000 crore in the last financial year to make ends meet and this financial stress is likely to continue if mining does not resume after the monsoons. In mining, grade of the ore and logistics are the two deciding factors. Low grade ore sells at a lower price and if logistics costs are not kept down to a bare minimum, sale becomes unviable. The state government has to intervene or face another year of low revenue which would put development projects in jeopardy.
