Global demand scenario for iron ore may mar Sesa Sterlite's return to Goa

By Megha Mandavia, ET Bureau | 17 Nov, 2014
MUMBAI: Sesa Sterlite has waited for more than 27 months to resume iron ore mining in Goa. As it awaits one clearance after another to re-start the once-lucrative mining in the coastal state, the global demand scenario for Goa's low-grade iron ore has changed completely in the meantime.

Iron ore prices have tanked globally to half and are expected to fall even further. On the other hand, Australia has stepped up production. China, which was Sesa Sterlite's biggest customer, doesn't need iron ore as much as it used to; it has cut back on steel production as well as consumption, making things worse for Goa miners.

Most domestic steelmakers lack technology to use Goa's low-quality ore and prefer high-grade ore from either Odisha, Karnataka or even Australia.

Sesa Sterlite, along with other miners in Goa, have pinned their hopes on the finance ministry to abolish 30 per cent export duty on iron ore fines, without which it claims it will not be able to make any money. "Once it is zero, we are in business. If they don't reduce it, then Goa mining will not restart. It will be uneconomical," said Aniruddha Joshi, Sesa Sterlite's vice president, corporate affairs. "It won't make sense to do business at least on the export front. Unfortunately, Goa ore is low grade and inland transportation is so high that it can't be used by domestic mills."

Hitesh Avachat, group head - metals and mining at CARE research, said exporting iron ore out of India is not viable anymore as there's intense competition globally in an oversupplied market. He also blamed Goa's poor port infrastructure, which is causing Goan miners to lose out to aggressive Australian competition.

Sesa Sterlite expects it will be in a position to resume mining in eight leases by the fourth quarter of this financial year. But it will all depend on global iron ore prices and government's decision to abolish export duty.

Sesa Sterlite has mines that have an annual capacity to produce 14.5 million tonne per annum (mtpa). Out of which it will be able restart mining at mines that can produce 10.5 mtpa by fiscal end. However, with the recent mining cap by the Supreme Court on iron ore in Goa, these mines are expected to produce only 5-6 mtpa.

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