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    Steel industry stares at production disruption in 2020: India Ratings

    Synopsis

    The license of about 288 merchant mines will expire by March 2020, out of which 59 mines are under operations, according to Ind-Ra’s assessment.

    ET Bureau
    KOLKATA: Domestic steel production would be significantly affected if there is delay in auction of mines which would complete 50 years of operations by March 2020, according to ratings agency India Ratings and Research (Ind-Ra). With around 60 million tonnes of actual production of iron ore from these mines likely to be disrupted, this would impact the credit profile of non-integrated steel players like JSW Steel, Rashtriya Ispat Nigam Limited and merchant miners. This could also trigger an increase in imports though given the high cost of importing ore, Ind-Ra said it does not expect import volumes to go up substantially.

    The license of about 288 merchant mines will expire by March 2020, out of which 59 mines are under operations, according to Ind-Ra’s assessment. A majority of these –some 59 mines -- are iron ore mines situated in Odisha and Karnataka with around 85 million tonnes of approved annual capacity. Ind-Ra said it estimates that around 60 million tonnes of the actual production of iron ore from these mines could be disrupted. “Considering that the auction process on an average takes three to six months to complete, a delay in initiating them until the latter half of 2019 due to the Lok Sabha elections in the country could affect the timely auction of mining lease,” the report said.

    Steel players such as JSW Steel, Rashtriya Ispat Nigam Limited and other steel companies, which are either under stress or referred to National Company Law Tribunal are expected to increase their production in 2020, Ind-Ra said. However, absence of domestic iron ore supply may make force them to increase import of iron ore mix, leading to a potential hike cost of production.

    While the largest domestic miner, NMDC Ltd may be able to increase the volumes to 4-5 million tonne per annum (mtpa) with evacuation facilities being placed at its captive mines, its 7 mtpa Donimalai operations can re-start after the settlement of a dispute between the government agencies on premium payment, the report said.

    Imported iron ore is at least 150% of the domestic procurement prices. India Iron ore imports are less than 10% of the overall requirement (estimated 13mtpa for 180mtpa requirement). The iron ore prices have already gone up due to the disruption at Brazilian mining major VALE Ltd; however, Ind-Ra said it believes the situation to normalise in the second half of FY20, as international prices soften due to improved global supplies. Since import is an expensive option, Ind-Ra does not expect the import volumes to go up substantially. To ensure limited disruption to volumes, the government agencies may plan to extend expiry deadlines for mines along with awarding of licenses.


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