Pressure to ease on iron ore prices; mining firms to resume operations

iron ore

The Supreme Court order allowing some large iron ore mines in Odisha to restart is likely to soothe iron ore prices.

These mines had been ordered closed for defaulting in payment of compensation for overproduction. As a result, ore prices had risen sharply in recent months. Seven mines had shut down, some large, since the beginning of this year. Ore prices have risen about 60 per cent between October 2017 and now, worrying user industries, mostly steel plants.

The closure, if not reversed, had been expected to knock off at least a fifth of the 102 million tonnes produced in Odisha during 2016-17. Around 25 mt of capacity is estimated to have been restored.

"With all these capacities coming back to operation, iron ore prices would see some correction in the near future," says a senior official of a large mining company. There are already signs of softening of prices, the rate coming down by about Rs 100 per tonne, he added.

However, the price drop might not be so significant. The mining companies have paid large amounts as compensation for overproduction to be eligible for resuming of operations. They would be eager to recover the amount before 2020, when the tenure of their leases expires in line with a new law.

The rate for ore fines had gone up from Rs 1,400 a tonne to Rs 2,200 a tonne; lumps had risen from Rs 2,700 a tonne to Rs 4,500 a tonne between October and January.

 

Despite the closure, Odisha, which meets a little over half the nation's iron ore need for steel making, is on course to meet its annual target. In 2017-18 (which ends on March 31) so far, it had already produced nearly 92.9 mt up to February 20, compared to 90 mt in the corresponding period of 2016-17 and 102 mt for the full year.

The Supreme Court, while disposing of a case filed by non-government organisation Common Cause, had asked the mining entities which had produced iron ore/manganese in violation of environmental and forest norms, and the approved mining plan, to pay compensation to the extent of 100 per cent of the value of ore raised by them in excess of their permitted limits by December 31.

Of 132 iron ore/ manganese mines sent notices for such violation, 76 paid fully. The other 56 paid partially or not at all. The state has till date collected Rs 115.11 billion from the companies on this head, against the demand notices for Rs 175 billion.