Is there rust in our steel frame?

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Iron Mining by Shailendra (37)
Photo: Tehelka Archives

 

Once upon a time, India was the primary exporter of iron ore to China in the international market. It could satisfy the basic demands of the domestic steel industry, one of the largest in the world, and also able to sell its surplus of low-grade ore to China and other countries. But TEHELKA’s research shows this trade has become history. India is no more a large exporter of iron ore.

Well, the reason why India has slipped down from the top cannot be laid at the door is not the ups and downs in the iron ore market. Nor has production decreased. We have a huge stock of iron ore. Despite knowing that India is no more a large player in the iron ore market, why have ministers and bureaucrats kept quiet? Why don’t they try to restore India’s place in the market?

One more interesting revelation is that we are importing ore iron from other countries.

TEHELKA’s research on this intriguing topic brings forth a truth that is rather ugly: This strategy of
fiddling while Rome burnet was designed by Indian politicians, bureaucrats and the domestic
corporate lobby, perhaps to fill its own pockets.

According to documents in TEHELKA’s possession, the iron ore industry was expecting huge returns from the investments made in exploration, mine development and infrastructure, all created by it at great cost. The central government, under pressure from the steel lobby, increased export duty from 5 percent to 20 percent in March 2011 and 30 percent in December 2011. During this period, railway freight was also increased by 3.6 times the domestic freight on export cargo. As a result, iron ore exports became unviable and exports which were 117.3 mt per year in 2009-10 plummeted to 18.37 mt in 2012-13.

The sudden withdrawal of 100 mt from the world market at a time when iron ore prices were on a
downturn was of benefit to India’s competitors such as Australia and Brazil, since the world price
picked up while supplies from India fell short. The investment made in creating the infrastructure
facilities, exploration and mines development have become infructuous.

RK Sharma, General Secretary of the Federation of Indian Mineral Industries (FIMI), told TEHELKA: “A country exports a commodity or commodities which is/are surplus in the country and imports what’s
is in short supply or not available. Free trade allows nations to realise maximum unit realisation for a
product. Further, if a businessman gets  lower/depressed prices in domestic market because of abundant/ oversupply vis-à-vis demand, he would like to get maximum price for his product by exporting it if there is demand abroad. Somebody is filling their pockets by selling surplus material to businessman at lower prices.”

Sharma further added, “Despite some increase in domestic steel production by steel companies
that do not have captive iron ore mines, the growth in the iron ore industry particularly with regard
to utilisation of fines was such that these steel companies could not absorb it. Since export continues to
surge and the steel industry could not match the price at which the iron or fines were being exported,
the steel lobby created the bogey of depletion of iron ore resources for future domestic use and brought
forth the outdated concept of intergenerational equity (a concept that says that humans ‘hold the natural
and cultural environment of the Earth in common, both with other members of the present generation
and with other generations, past and future).”

We have come to know that the whole idea of making exports unviable was to create a glut in the domestic market so that steel makers could get hold of iron ore at depressed prices and garner more
profits from sale of steel. As a result, India lost its export market for iron ore and valuable foreign exchange; the domestic steel industry, which got cheap iron ore, changed from consumers more than the
international prices for steel, which shows that increase in the export duty of iron ore has decreased
the export.

TEHELKA’s research shows that the Government of India gave in to the pressure of the steel lobby
and imposed 30 percent export duty and increased by 3.6 times the domestic rail freight on export
cargo. As a result, iron ore exports which were 117.37 mt in 2009-10 down to 18.37 mt 2012-13 and are
only in 6.94 mt in April-September, 2013-14. Sudden withdrawal of 100 mt has caused India lost $23
billion in foreign exchange causing current account deficit (cad). This also rendered ten of lakhs of people
out of jobs directly and indirectly.

According to the documents shared by FIMI, there is huge stockpile of 128.06 mt of iron ore at the mine-head: 27.69 mt are lumps and 100.37 mt fines. The stockpile of iron ore in Odisha is about 77 million tonne and in Jharkhand about 25 mt. As a result, if available amount of iron ore is not sold or exported, it would be washed away in rainy season. But one cannot think of exporting iron ore with 30 percent export duty (10 percent duty on iron ore up to 58 percent Fe grade). Iron ore mines are out of international market since last three years and it will be a Herculean task to revive exports but it will definitely be the first positive step of the government. And after that, government should take appropriate steps in taking up the matter with Ministry of Railways for reducing the railway freight on iron ore meant for export so that exports may become feasible.

Sources and data suggest that despite having the iron ore in stock in 2014-15, 12.09 mt of iron ore was
imported. Records say India was the third biggest exporter of iron ore, now why are we importing
the same. Now a country that was an exporter is paying heavily for imports.

In comparison to 2013-14, a huge decline was seen in the production of iron ore. In 2014-15 it was 128.90 mt, whereas it was 152.43 mt in 2013-14. With declining exports, production is also declining.
Exports are not possible because of export duty and high railway freight.

We found that export of iron ore has gone down in the last five years. To China, in 2011-12, we were
exporting 57.63 mt, which reached a level of 15.85 mt in 2012-13, and 12.07 mt in 2013-14. A huge decline with figures of 3.14 mt was seen in the export of iron ore in 2014-15. We have some more figures regarding the export of iron ore to other countries which shows decline in export of iron ore.

hen we look at the total amount of export of iron ore, it stands at 14.42 mt in 2013-14. It was reduced to 8.30 mt and further fell to 6.12 mt in 2014-15. This is the prevalent downward trend of iron ore exports at international level from India.

The following benefits accrued from export:
♦ Exports were from existing standalone non-captive mines (No new major mines were opened in last two decades) providing direct and indirect employment to more than one million people in backward and
tribal areas.

♦ Ports like Chennai, Ennore, Haldia, Paradeep, Gangavaram, Goa, Vishakhapatnam, Karwar,  Krishnapatnam, Bellikeri, Redi, Kakinanda, and New Mangalore were developed as iron ore ports.

♦ Many railway lines such as KK, DKB and doubling of all lines from Hospet to Chennai and Goa were
constructed for iron ore export only, creating so many jobs.

♦ Increase in the sale and production of trucks and other vehicles for movement of ore and earth-moving equipment for mining.

♦ Contribution of the mining Industry to state/central exchequer in the form of royalty, VAT, and corporate mining.

Export duty and higher railway freight killed export. The consequences:
♦ Just when the iron ore industry as expecting returns from the investments made in exploration, mine development and infrastructure created at great cost, under pressure from steel lobby, Government of India imposed export duty.

♦ Indian iron ore became uncompetitive and Indian export started plummeting, though for a short while, sink was seen in the Indian rupees.

♦ India’s export of iron ore to China was a major component in India’s bilateral trade. It has now become
marginal.

♦ India, which was the largest supplier of Iron ore to Chinese market, came to an insignificant position giving way to South Africa and other countries.

♦ Mines closed or scaled down production. This resulted in the job loss of more than half million people engaged in it.

♦ The investment of about 35,000 crore in creating production capacity for pellets was put in jeopardy.

♦ The steel industry, which expected excess in domestic market and depressed prices, did not benefit because unless surplus fines were evacuated from mines, cannot start production.

♦ At last the iron ore industry was killed because there were not enough buyers for surplus fines.

Iron ore producers are still in heated arguments with the government against the export duty on iron ore. They are still fighting, for the feel skewed policies have destroyed a flourishing iron ore industry rendering one million people out of jobs at a time when despite government’s protestations, the country economic situation is alarming.

On the other hand, iron ore industry was killed because there was not enough buyers for surplus
fines and unless fines are evacuated, additional production could not be done.

TEHELKA contacted the Ministry of Steel of India, Yashdeep S Kataria, Deputy Director and Media &
Communications Officer to ask, “What is the reason for increasing the export duty and railway freight on export of iron ore why government is entertaining domestic industries rather than international export?” His answer: “It is the government’s duty to facilitate domestic industries to the best of its ability. Basically, commerce ministry is involved in it. It’s better if you talk to the commerce ministry. We generally give suggestions but decisions are implemented by the commerce and other relevant ministries.”

Kataria further added, “For overall industrial growth, we don’t get much benefit if we directly export iron.” But that can’t be the final word on the subject.

 

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This top bureaucrat does not agree that there was any foul play in the circumstances that made iron ore exports unviable. She says infrastructure development in mining typically takes up to five years and manipulations are not so easy. On the contrary, one could say that iron ore resources have not been squandered for immediate profits, she argues in an interview. Excerpts. 

Q. Is it true that the increase in export duty and railway freight of iron ore has hit iron ore supply internationally?

A. Iron ore production in India was impacted significantly after the Supreme Court ruling in 2011 banning iron ore mining in Karnataka followed by another ruling in 2012 banning mining in Goa, which possibly also reflects in the lower export from the country. It may also be noted that global iron ore prices fell significantly during the same period and have definitely played a role in viability of exports from India. The increase in export duty and railway freights were intended to ensure that adequate iron ore is available in India for value addition in downstream industries.

With increase in export duty and railway freight, iron ore exports became unviable and exports which were at 117.37 million tonnes in 2009-10 plummeted to 18.37 mt in 2011-13. Sudden withdrawal of 100 mt from the world markets at a time when global iron ore prices were on the downturn benefited our competitors such as Australia and Brazil in creating infrastructure facility. Who is responsible for this? If government is responsible, then what is your view on this?

Infrastructure development in mining typically takes 4-5 years and is a strategic decision. The decision by Australia and Brazil, as claimed, presumably would have been in making for long and does not reflect what India did or did not do. Further, the prices of iron ore have continued to fall and the resultant distress in global mining industry is well known. One may as well argue that the iron ore resources
of India have not been squandered for immediate profits.

Earlier we were the largest supplier of iron ore to the Chinese market. Now, we occupy an insignificant position. What is your take on this? 

India intends to facilitate value addition by domestic industry and not merely export the natural resources. We believe it ensures greater revenue generation, greater employment generation and greater benefit sharing by local communities and society at large. Having said that, it is for the market
participants to identify opportunities and explore them. Any iron ore mining company in India
is free to export iron ore to China or to any country for that matter, as long as it operates within the legal and regulatory framework.