Iron ore crunch spreading in Karnataka

Last Updated: Thu, Aug 02, 2012 19:06 hrs

Shortage of iron ore supply from Karnataka is posing a challenge to steel and pellet-making plants to maintain their production levels.

Companies, such as BMM Ispat Ltd, Kalyani Steels, Kirloskar Ferrous Industries Ltd and pellet-making companies like MSPL Ltd, Sesa Goa and Dempo, facing acute ore shortage, hold raw material inventory for just 20-45 days.

With barely three million tonnes (mt) of ore left of the 25 mt reserved for e-auctions in the state, these companies might have to either close operations or look for high-cost ore from other states if mining does not resume immediately in Karnataka. The companies are also under huge financial stress due to the high cost of material at e-auctions.

However, a large portion of the remaining stock at the auction is of very low-grade ore (50-52 per cent Fe) is unusable for steel mills. Even JSW Steel and BMM Ispat, which have beneficiation plants to enrich the ore, cannot use such low-grade ore.

BMM Ispat, which is the second-largest steel maker after JSW in Karnataka, is planning to bring ore from Chhattisgarh and Odisha. “Our executives are talking to the miners in these states. We are also working out the pricing as well as logistics. We have to incur an additional cost of Rs 5,000 per tonne if we bring ore from outside. The company board has to take the final decision before we start buying ore from there,” a company spokesperson said.

BMM Ispat operates a 2.4-million tonnes per annum steel plant at Hospet and requires 4 mt of ore per annum. It currently has stock for two months.

Kalyani Steels, which operates a 700,000-tonne steel plant, also in Hospet, is currently operating at a third of its capacity. “Only one of our three furnaces are in operation. At this rate, we can manage production for just a month and if mining does not resume by the end of this month, we will be in big trouble. We are also exploring the possibility of bringing ore from Jharkhand and Chhattisgarh, which is very expensive,” said R K Goyal, managing director, Kalyani Steels. Kalyani requires 3,500 mt of iron ore per day.

“It is a tough time. The quality of ore in the auction is poor.Since these have a high percentage of alumina and silica, we cannot use these to make pellets. We don’t have enough stocks and can manage for just about a month,” said Meda Venkataiah, executive director, MSPL Ltd.

MSPL operates a 1.2-million tonnes per annum pellet plant in Koppal and requires 4,000 tonnes of iron ore per day. It cannot use ore of less than 62 per cent Fe grade.

JSW Steel, however, is the only company which purchased 14 mt at the e-auctions and currently has stocks for two months.

Kirloskar Ferrous Industries Ltd, which operates a 500,000-tonne per annum plant to produce iron castings and foundry grade pig iron, is also considering importing ore from other states.

“The high logistics cost doesn't make it a viable option to bring ore from other states. We have stocks for a month and hope mining will restart by then. If not, we have another option of using pellets or bringing ore from other states,” a company official said.

Basant Poddar, vice-chairman, Federation of Indian Mineral Industries, South said, “The mid-size and small steel mills are under huge financial stress as they are forced to buy ore at e-auctions paying higher cost. They would also face more financial difficulty if they are to bring ore from other states.”

Presently, the auctioned material in Karnataka costs Rs 8,000 per tonne at the factory site. Buyers have to pay 12 per cent forest development tax, 10 per cent royalty, five per cent value added tax and logistics cost over and above the auction price.

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