PISSURLEM, India/SINGAPORE, Nov 29 (Reuters) - India's
efforts to clamp down on illegal mining have handed a $15
billion lifeline to global iron ore giants, and there could be
more to come.
Steps taken by federal and state authorities to clean up the
mining and export of iron ore have shut down output in two key
producing states, slashing shipments and forcing steel mills to
import a raw material the country has in abundance.
Now the Shah Commission, whose report on top exporter Goa
led to the state government's ban on mining in September, has
turned its attention to the last major iron ore producing state
The exit of the world's third-largest iron ore exporter has
been perfectly timed for miners in other countries seeking
alternatives for their growing supplies as appetite from top
buyer China slows.
The world's biggest producers Vale, Rio Tinto
and BHP Billiton have taken
some of India's market share in China, Japan and South Korea,
and now are even eyeing exports to their erstwhile competitor.
Smaller miners like Australia's Fortescue Metals Group
also benefit, as they supply the lower-grade ore that
competes directly with India in the Chinese market.
"It will be a huge bonus for big miners," said Graeme Train,
commodity analyst at Macquarie in Shanghai.
"There'll also be a premium emerging for lower grade ore and
India's absence will drive Chinese interest into Fortescue-type
India's campaign to end illegal mining -- which authorities
say has cost Goa and Karnataka states around 510 billion rupees
($9 billion) in lost revenue in the last decade -- has cut its
iron ore output by more than 20 percent in the year to March and
its exports by almost double that.
Annual exports, which in the past decade peaked at nearly
106 million tonnes, may dwindle to as low as 5 million tonnes
over the next year, analysts say.
The roughly 100 million tonnes of lost exports at the
current average price of around $110 per tonne and another
potential 30 million tonnes of imports of higher-quality ore at
around $140 per tonne will cost India $15 billion, according to
Reuters calculations, money that goes straight into the pockets
of foreign miners picking up the slack.
India's role switch is one reason for a rebound in iron ore
prices , which this year fell below $87 a tonne to
their lowest since 2009 due to China's slowing economic growth.
India's iron ore exports to China fell to less than 300,000
tonnes in October -- the lowest in at least two decades -- after
the ban in Goa. That followed a mining ban in Karnataka in 2011,
after shipments there were halted a year earlier.
Goa's once-bustling mining hubs have turned into ghost
towns, with scores of empty trucks parked by the roadside.
Trains, some still loaded with ore, are stopped on the tracks.
"We have been sitting idle for over two months now," said
Pritesh Gawas, a 25-year-old worker at Sesa Goa's
In January-October, India's shipments to its biggest market
stood at 32.6 million tonnes, down nearly half from a year ago,
Chinese customs data showed, with South Africa edging it out as
the No. 3 supplier.
Shipments from Australia and Brazil were up 20 percent and
12 percent, respectively.
INDIA AS A BUYER
The flipside is that India is also starting to ship in iron
ore in significant quantities.
India has imported 9 million tonnes of iron ore so far in
the fiscal year that began in April, estimates Basant Poddar,
vice president of the Federation of Indian Mineral Industries,
and could ship in 15 million tonnes for the full year.
"It is a sad situation that we cannot mine in our own
country legally and supply to our own domestic steel industry,"
Poddar told Reuters.
Importers include big producers Essar Steel,
Bhushan Steel and JSW Steel, he said.
For the next fiscal year, India's iron ore exports may be no
more than 15 million tonnes, while imports could climb to 20-25
million tonnes, said Poddar, making the country a net importer
for the first time ever and hurting the competitiveness of its
"Being an iron ore-rich country like India, it doesn't make
sense to be producing steel on the basis of imported iron ore.
It doesn't work out economically for the steelmakers," said
Gunjan Aggarwal, senior consultant at research firm CRU in
Of the 800 iron ore leases in the country, only around 300
are operational, said a senior mines ministry official, adding
that the supply squeeze should be short lived.
"Systems are being tightened at state-level ... but once the
system stabilises, the supply crunch will ease out," said the
official, who declined to be named as he is not authorised to
speak to the media.
NEXT STATE TARGETED
The mining bans in Goa and Karnataka, which at one point
shut all mines in the two states, could now spread to the
eastern state of Odisha, which was visited by the Shah
Commission earlier this month.
Odisha's state government has fined several mining companies
nearly 680 billion rupees ($12 billion) for excessive mining of
iron ore over the past 10 years, state Steel and Mines Secretary
Rajesh Verma said.
None of those fined has been paid up so far, said Verma.
Tata Steel Ltd and Aditya Birla Group-owned Essel
Mining dispute the allegations.
A major difference from Goa and Karnataka is that Odisha's
ore is high grade and intended for the domestic steel industry
rather than export.
If mining in Odisha is stopped, Indian steelmakers may need
to import 30 million tonnes of high-grade ore a year, said CRU's
Aggarwal, adding that overall exports could fall to as low as 5
India's federal government maintains the way to crack down
on illegal mining is through better enforcement of existing
laws, higher export duties and improved tracking of transport.
The mines ministry has rejected a recommendation by the Shah
Commission for a blanket ban on exports.
The government instead decided to impose a 30 percent duty
on all iron ore exports despite opposition from the mines
ministry. It could raise this further or hike rail freight
rates, where it already charges a much higher rate for ore
intended for export.
The wrangling is not just within the federal government.
In Karnataka, the opposition-run state government banned
shipments in 2010 in response to pressure from the federal
government over illegal mining. Then its chief minister, B.S.
Yediyurappa, resigned after being implicated in a $3.6 billion
illegal mining scam.
State measures have otherwise been motivated by a range of
concerns from damage to the environment by unregulated mining to
loss of state revenues from illegal movements of the ore.
"The total learning from this is to abide by the law," said
Faisal Shareef, managing partner with Nadeem Minerals, whose
mine in Karnataka will restart later this week but will only be
allowed to produce about a fifth of pre-ban volumes.