Karnataka steel industry fears closure

Industry wants quick SC intervention as the only alternative for survival

Sudheer Pal Singh / New Delhi Apr 09, 2012,
Source : Business Standard
Seven months after the Supreme Court issued a detailed corrective plan for rampant illegal mining in Karnataka, until recently the iron ore hub of India, the viability of the Rs 45,000-crore steel industry in the southern state remains in question.

Contrary to the popular perception that enough iron ore would be available for steel mills within the state to sustain business until July, when operations are to resume, the industry says supply may run out as early as this month-end, bringing 23 per cent of the country's steel capacity to a closure.

The apex court had imposed a blanket ban on all mining activities in the state in August last year. In a temporary arrangement, aimed at helping the steel industry survive in the interim, the court had allowed daily auctions of iron ore from existing stocks, apart from directing state-owned NMDC Ltd to operate two of its mines to supply a total of a million tonnes every month.
With the auctions remaining largely deficient in meeting demand, owing to cost and quality issues, and NMDC failing to supply even half of the committed 1 mt, the future of investments worth Rs 56,000 crore, in addition to a Rs 25,000-crore debt exposure, is at stake. So is Rs 7,000 crore of annual tax revenue and the livelihood of thousands of workers.

Karnataka alone accounts for around a fifth, or 45 mt, of the total 220 mt of iron ore produced in India annually. The bulk of the state’s production comes from Bellary district, while Tumkur and Chitradurga account for the rest. The steel industry in the state -- comprising a little over a dozen companies, including JSW Steel, Mukand, Sunflag Steel, Tata Metaliks, Kalyani Steels and Kirloskar Ferrous -- churns out 15 mt steel annually, using this ore. None of these companies have captive mines linked to their projects and are, therefore, forced to procure their entire raw material requirement from merchant miners.

According to the final report of the Supreme Court appointed Central Empowered Committee (CEC), a little over 14 mt of ore from the available overall stock of 25 mt had been sold though auction by February 26. The report also notes 6.5 mt of the stock is sub-grade ore, to be excluded from auction. This leaves a meagre 4.4 mt stock available for sale against the demand of 2.5 mt every month.

The CEC report, given on February 3, has recommended resumption of operations in 45 mines -- classified as Category-A -- where no illegality was found. It filed a supplementary report on March 13, which recommended completion of new and detailed Reclamation and Rehabilitation (R&R) plans for these before operations resumed. Even if the R&R plans are prepared within two months, as recommended by the CEC report, it will take another three to four months for the mines to be fully operational and start commercial operations. Thus, it will be at least five months before any iron ore from Category-A mines is available, miners say.

“As existing stocks will be fully exhausted within a few weeks, the steel industry would face a catastrophic situation, with the marginal availability of 0.5 mt per month from NMDC mines. Therefore, it is essential that an immediate workable solution is devised to avoid drastic curtailment of steel production from May,” R K Goyal, managing director of Kalyani Steels Ltd, a large producer in the state, told Business Standard.

The crisis is more for the likes of Kalyani Steels. Unlike JSW, it does not possess beneficiation and sintering facilities, thus being dependent on calibrated ore , as against fines, for production. “Calibrated ore is not available in auction. Also, our mines are closed for the past eight months. Restarting operations would require more time, as equipment and manpower would have to be mobilised,” said Goyal. Kalyani Steels uses 1.2 mt iron ore to produce 0.7 mt steel annually.

Capacity utilisation of JSW Steel, the largest manufacturer in the state with a 10 mtpa plant in Bellary, has fallen to between 65 per cent and 70 per cent, owing to low quality and availability of ore. It had fallen to 30 per cent immediately after last year’s ban. The auctions had later helped push up utilisation to a little over 80 per cent during the third quarter ended December 2011. A JSW spokesperson refused to comment on the matter.

Even as miners have raised a furore over availability, the CEC is optimistic on early resumption of supply. “Considering the quantity of iron ore sold and transported till date, the CEC is of the view that the existing stocks may be adequate to meet the requirement of the steel and associated industries up to May/June 2013,” it had said in its final report of February 3.

The report states how the extent of “rampant, unauthorised, unregulated, environmentally unsustainable and illegal mining” and consequent massive encroachment in the forest area had perhaps no other parallel in the country. Meanwhile, the hearing on the case in the Supreme Court, postponed many times already, is due on April 13.