Bellary Mine Logjam to Impact Iron and Steel Production in India

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Researched by Industrial Info India (Delhi, India)--The Indian Supreme Court's recent ban on mining activities in the Bellary district will affect the iron steel production capabilities of many companies operating in the region. With the exception of National Mineral Development Corporation (Hyderabad), which is a Government of India Enterprise, mining activities of all the other companies have been banned in the region. There are many companies operating in the southern state of Karnataka, which has emerged as the iron and steel hub of southern India.

There will be a shortage of iron ore to feed steel mills operating in the region for a period of time. Nearly 80% of the iron ore produced by the state is produced in this region. The total iron and steel produced in Karnataka is approximately 16 million tons per year, constituting about 24% of the country's total production, which is 66 million tons per year.

This imbalance in production of iron ore in the state will affect the supply-demand equation and price dynamics of the iron ore in the region. Many steelmakers will be looking for a supply of raw material from other states and other companies producing surplus iron ore. Tata Steel Limited (BSE:500470) (Mumbai), JSW Ispat Steel Limited (Kolkata, West Bengal) and Essar Steel (Mumbai) are likely to benefit from the new supply-demand situation. Companies are also looking to source iron ore from NMDC mines that are allowed to operate in the region. NMDC has been allowed to mine 1 million tons per year to meet the steel industry's requirements.

The volume and margins of JSW Steel (Mumbai) will be severely hit. The bargaining powers of mines will increase as they are aware that other options like imports are much more costly. Tata Steel will mostly remain unaffected, as it can complement supply from its captive mines in other states. Steel Authority of India Limited (SAIL) (BSE:500113) (New Delhi) could see some benefit from this development, as the company can expect some regional premium on prices of flat steel products.

The increased cost of iron ore will have incremental effects on the price of consumer durables, automobiles, construction and infrastructure. The capacity addition plans and expansion projects of various steelmakers will also be delayed. Many government enterprises such as India Railways, which is major medium of transportation of iron ore, will also be hit.

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