MINING MELTDOWN

MINING MELTDOWN

Demand for iron ore slumps across globe

Shivakumar G Malagi £ tnn

Bellary: “Sell at $60 per tonne or dump it in the sea” — this is what Bellary miners are hearing from global buyers for their hitherto prized commodity, iron ore.

At ports in China and Hong Kong, millions of tonnes of Bellary ore is lying idle. The scene is eerily similar in domestic ports; at Chennai, Visakhapatnam, Krishnarajapatnam, Goa, Karwar and Mangalore, almost every major miner has ‘unsold’ stock of 3-4 million tonnes of ore.

Bellary-Sandur-Hospet ore belt that annually produced an average of 40 million tonnes of ore since 2003 has witnessed a sharp decline in production over the past three months. “Average production of ore in this region was 3-4 million tonnes per month, but after July 2008, it was around 1.5-2 million tonnes. This includes domestic consumption and exports. Mining activity has come down nearly 50% in the last three months,” says B N Shankar, deputy director, DMG, Hospet.

Not many Bellary miners envisaged a slowdown in China’s import of iron ore, partly due to constraints from domestic factors like increase in rail freight rate and restriction by ports in handling ore.

Insiders say the export of ore could drop by 10-15% a year, given the demand slump, especially with China completing its Olympic related-infrastructure projects. “Now, we are left only with the option of dumping ore in the sea as we can’t bear the international port charges. I do not see Bellary ore getting high rates again within a year,” was the rather dramatic statement of the manager of a mining firm in Sandur who toured Chinese and Hong Kong ports.

Steel producers are looking to cut costs, further affecting ore producers. “We are rigorously working to reduce costs. With ore prices coming down 50%, suppliers are not responding to the situation, they are in shock. Everybody has to reduce costs and face the crisis to survive. Otherwise, it leads to demoralization,” said Vinod Nowal, director (commercials), JSW Steels.

Mines and Minerals Transport Corporation’s prices for ore it buys from miners for export had ranged between Rs 2,400 to Rs 2000 per tonne since 2004. Post July 2008, it fell sharply to Rs 1,225 and on October 16, it was a mere Rs 425, almost the price of sand.

Apart from general economic slowdown, miners blame the ‘steel lobby’ for the crash in the Bellary boom. “The strong steel lobby succeeded in pressuring the Union ministry of commerce, mines and steel to levy a 15% export duty on ore, that has literally killed the mining industry,” remarks Hothur Abdul Wahab, former president of All India Mine Owners and Suppliers Association.

In fact, miners says, steel companies had no reason to demand restriction on exports and it was only lower-grade ore — fines — that was being exported which domestic steel makers don’t use.