Steel producers are staring at a bleak future in raw material supply as a clutch of leases for coal and iron ore mines are slated to lapse on March 2020 after completing 50-year period.
The closure of these merchant mines — 334 in total and 46 working ones — belonging to companies such as Tata Steel, Vedanta Limited, Essel mining, Rungta Mines and V M Salgaocar across 10 states could cause a significant disruption to domestic supply of iron ore, manganese and chromite. To avoid this, a high-level committee of secretaries has suggested that the leases be auctioned by January 31, 2020 — two months before they expire — as per the provisions of the Mines and Minerals (Development and Regulation) Act.
“Today, perhaps because of the change in the legislation, everything has to go through the auction route, which is creating lots of issues and the steel industry may face disruption by April 1, 2020, because of the auctions of coal mines,” SAIL chairman Anil Kumar Chaudhary said.
Seeking judicial allocation, he said, one of the major raw material, “coking coal is not available in India and the whole industry is dependent on imports, particularly integrated steel sector imports from Australia, Indonesia and US.”
Acuite Research & Ratings in a report estimated the expected impact on India’s steel sector at 25-30 per cent of the aggregate domestic iron ore supply in the first half of financial year 2020-21. This will push up lump ore prices, increase working capital requirements and hit the sector’s EBITDA (earnings before interest, taxes, depreciation & amortisation) margins, which are already under pressure due to subdued domestic demand.Another concern for the industry is high input cost, Chaudhary pointed out.
Currently, the production cost of steel in India is the highest and one of the major factors contributing to this are the taxes, he said, noting that royalty is close to 20 per cent on the input material whether it is coal or iron ore, freight cost is higher than what is being paid in other countries and furthermore, electricity also adds to the high production cost.
“In India, the average production cost of per tonne steel is about $450, whereas in China, where companies get benefit of low tax and incentives, it is as low as $350,” Chaudhary emphasised.