India's Iron Ore and China's Growth

India may well reconsider an option it rejected exactly ten years ago - Banning export of iron ore unless it’s converted into a value added metal. A move which Indonesia has endorsed over the weekend, forcing global miners to announce plans to set up refineries in the mineral rich but heavy industry-poor  South East Asian economic powerhouse.  
Top officials in the steel ministry and planning commission who had a decade back argued that allowing Bellary-Hospet’s mineral riches to be exported to China without any value addition, meant losing out on job creation at home besides reducing export incomes which could come when ore is refined into costlier iron pellets or steel, had their ` Vous a dit si’ or `I told you so’ moment.
Top officials who said they would study Indonesia’s move to see how President Susilo B Yudhoyono’s move helps grow investment and export valuations, had ten years back opposed removing a cap on sale of high grade iron ore lumps and fines from Bellary-Hospet and Bailadilla mines. They had, instead, presented the then NDA Government with an alternate note which proposed encouraging those who wish to import ore from India to set up iron pellet making or steel-making capacity here.
Officials had also argued that ore exports, to China, if allowed, should be linked to barter deals for high grade coal from that nation as India was projected to spend huge amounts on import of in future years. Neither of these arguments were paid much heed to, instead the cap was lifted. The result : 1) India 's export of iron ore, sold at a tenth of the price of steel, zoomed by a 100 per cent in just 3 years to 100 million tonnes; 2)  By 2012-2013, India was spending $ 18 billion in importing 137 million tonnes of coal compared to a couple of million dollars, ten years back.

After the Congress-led UPA government took over a rethink on the old policy started. However, once again the mining lobby won the day and ultimately, the government continued with its policy of allowing ores to be exported. Rules said only fines and lumps with low grade iron would be allowed to be exported. However, the reality which later Supreme Court appointed committees exposed was that high grade iron ore kept being shipped out of the country, with 80 per cent of it headed towards China. 
China’s steel-making capacity based on iron ore imports from India, Indonesian, Australia and Brazil, doubled to 800 million tonnes a year in these 10 years. Imports from India and Brazil were especially prized as these were of high grade ore with iron content of near or above 60 per cent.
In sharp contrast, India's steel making capacity increased from 48 million tonnes in 2004 to around 78 million tonnes in 2014, a fraction of the amount of steel churned out by China, a nation with very poor iron ore resources.
Needless to say economists have long been able to trace a direct correlation to steel production and usage to a country's per capita income growth.

When current Himachal Pradesh chief minister Vir Bhadra Singh, took over as steel minister in 2009, he renewed the battle arguing in notes that India is a  “major producer of iron ore, much of which we export at low price  ... we should rather work towards a policy of encouraging value added exports which fetch us better revenues."
This was reiterated again last year by steel minister Beni Prasad Verma who argued that it "makes more sense to push exports of steel valued at $ 800-1000 per tonne rather than raw materials valued at $100-120 per tonne.”
Ultimately, it was the courts which stepped in to stall ore exports, but not on policy considerations but rather to stop rampant, illegal mining which could degrade the environment.  The result, point out steel ministry officials, has been rather good for value-added iron pellet exports. While iron ore shipments declined drastically with total ore exports likely to be less than 30 million tonnes this financial year, compared to 62 million tonnes in 2011-2012. Iron pellet exports witnessed a boom,  with most of it headed towards China. Exports of pellets which are the costlier replacement for ore in steel making, are likely to be nearly 800,000 tonnes in this financial year or 20 times exports in the previous 2012-2013 year.

Elephants, SAIL, Maoists & Mines

A battalion of CRPF para-military men took up positions this week, deep in the jungles of Chattisgarh’s Maoist-stronghold in Rowghat forests, to provide cover for building barracks  for upto 4,000 soldiers who will guard the planned 511 million tonne iron ore mine and a railway track running upto the mine.
India’s Steel Authority of India Ltd (SAIL), an under-performer in the bourses, has been forced to go in for the costly security cover in a desperate bid to keep iron ore flowing to its steel mills, after stalled environment clearances shut down two of its top mines – Bolani in Orissa and Gua in Jharkhand.
Out of the 24 million tonnes of iron ore the steel giant requires to keep its steel factorys at Bhilai, Rourkella, Bokaro, Burnpur, Durgapur and Salem running, some 7 mt used to come from these two shut mines. The shortfall, which will pinch SAIL soon as it has limited stockpiles, could translate into costly purchases in the year ahead unless either Rowghat starts producing or the shut mines restart. 
The CRPF forces who are to be deployed had demanded that barracks be built for them before the brigade strength security is sent to protect the proposed mine. However, in a chicken and egg situation, contactors tasked to build the barracks asked for at least one battalion to be posted to guard those who build the buildings!



Rowghat has long been used by the Maoist groups as a base for operations in the tribal state.
The forces would guard not only the mines which will supply upto 14 mt per annum of high grade iron ore to Bhilai steel plant but also a new railway line  -Dalli-Rajhara-Rowghat-Jagdalpur - to be built jointly by the Railways, NMDC and Chattisgarh state on a cost sharing basis.
An elephant corridor demanded by India’s strident environmentalist lobby has shut down its iron mine at Bolani in Orissa and a tussle is on over whether and when it will be re-opened. While bureaucratic red tape has delayed forestry clearances necessary to operate another mine at Gua in Chattisgarh state.
The net result is SAIL’s iron ore production from its captive mines is short by 14,000 tonnes every day. Forcing it to look towards an area frequented only by wild animals and Maoist militants till now. 
However, realistically, even after the deployment of armed para-military forces,  Rowghat mine will not start shipping its high quality iron ore for at least two to three year years. The Rs 700-crore railway line is expected to take two years to build. As for the mine, Australian consultants Hatch Associates are preparing a detailed mining report which will take some months. Bidding for a mining partner is expected to be held after that, sometime next year. Actual mining could take at least two-to three more years after the winning bidder weighs anchor.