India’s Karnataka region on the southwest of India has actively invited bids for four iron ore blocks. Mining leases are to be contracted for 50 years per statutory terms. The price on auction are presently expected to be dampened by regional limitations.
In late April, media sources reported that iron ore miners in Karnataka were facing 6.5 million mt of iron ore compared to 1.5 million mt in the same period the previous year. Unsold ore amounts to more than 20 percent of the total production of iron ore in the state in FY19. The quality of iron ore in the region is considered inferior and nearby steel mills are purchasing from other states or importing the product. Additionally, Karnataka mines are not allowed to export outside the state per Supreme Court ruling that all iron ore is sold to domestic steel companies via e-auction on mt basis.
Karnataka produced 29.5 million mt of iron ore in FY 2019 ended March 31. JSW Steel is the largest procurer of iron ore in Karnataka. According to Seshagiri Rao, Joint MD & Group CFO, the two mains reasons for the high inventory in Karnataka are price and quality. Rao added that state owned entities in state price iron ore substantially higher than market potential which results in the high inventories.