Possible ore shortages may hit Indian capacity expansion plans

Tuesday, 22 May 2007 13:57:48 (GMT+3)   |  
       

With their plans to increase domestic steel production up to 60 million metric tons by 2010, as well as to extend the share of high value added products, the Indian steelmakers have begun to voice their concern that the country may run low on the raw materials used in steelmaking, such as iron ore, manganese ore and chrome ore.

At the beginning of the current month the Indian government decided to partially roll back the previously-imposed export duty for low grades of iron ore, from Rupees 300/mt to Rupees 50/mt. This decision provoked a series of protests from the local steelmakers who claimed that, in the context of the plans to increase the country's steel capacities, the domestic steel producers would experience a scarcity of iron ore to a degree that they would have to resort to imports. However, this claim made by the Indian steel producers was something of an overreaction. Looking at the current state of the Indian iron ore market (domestic production and consumption), it can clearly be seen that only a small percentage of all Indian-produced low grade iron ore is consumed in the domestic market, while iron ore with iron content of more than 65 percent is in far greater demand. Therefore, the roll back of the export taxes on low grades of iron ore should not be viewed as posing a danger to the future of steelmaking in India. On the contrary, the availability of high grades of iron ore may be a problem in the near future as steel production increases in the county. Hence, a partial roll back of the export duties is not relevant here. 

The real threat to India's steel capacity expansion plans is to be found in the possible shortages of other key raw materials required for steel production, namely, high grade manganese ore and ferromanganese ore. Regarding these materials, the country's mining industry predicts a huge imbalance between domestic demand and supply in the upcoming years.

If India is to increase its steel production capacity to 60 million metric tons it will require at least 2.5 million metric tons of manganese ore. At present, the production of manganese ore in the country is about 1.9 million metric tons, while the total domestic deposits of this raw material come to about 104 million metric tons. The largest manganese ore producer in the country, Manganese Ore India (MOIL), which produced about 611,000 metric tons of ferromanganese ore in the last Indian fiscal year, accounts for 60 percent of all India's manganese production. However, even if MOIL manages to optimize its production capacities it still will not be able to meet growing demand for the ore from the steelmakers. The main problem causing low production of manganese ore in the country is the low level of development and investments in the industry. The domestic industry has started petitioning the government to increase investments for the exploration and development of new deposits. Till then the Indian steelmakers will have to rely on imports of manganese ore from South Africa, which holds 80 percent of the world's manganese deposits.

The last but not least raw material, a shortage of which could hit the expansion plans of the Indian steelmakers, is chrome ore - widely used in the production of stainless steel.

Indian stainless steel producers are already suffering under the pressure of soaring nickel prices in the global market. With the suspension of supplies from the country's main chrome ore producer Tata Steel the situation in the stainless industry has become tougher. Tata Steel explained its decision by saying that the company is interested in manufacturing ferrochrome from the chrome ore it produces rather than selling this raw material in the market.

In the wake of Tata's decision, the Indian Ferro Alloys Producers' Association is now demanding from the government a stoppage of all exports of chrome ore. In addition, with Tata's supplies now out of reach, many steelmakers have turned to the state-run Orissa Mining Corp. (OMC) for chrome ore. However, the stainless steel producers located outside of Orissa state believe that 70 percent of all ore produced in the state will be used within the borders of Orissa, leaving them no choice but to import.

Thus, the ambitious plans of the Indian steelmakers to increase their steel production capacities and their production of high value added products may well be hit by a shortage of the various ores used by the steelmakers. The positive scenario for the solution of this problem lies both in effective government policies and in the adoption of appropriate strategies by individual steelmakers.


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