The Supreme Court has lifted an 18-month ban on iron ore mining in Goa, bringing cheer to several miners, but the low-grade ore the state produces may not find many takers in local or international markets this time around, experts said.
The ore with 54-56% Fe, or iron, content would find it difficult to win back international customers, especially its once-biggest buyer China as the latter now buys more from Australia.
Slowdown in steel capacity addition and the new pollution control regulation in China may make things even tougher for Goa miners.
China is amending its 1989 environmental protection law, which would give government more powers to shut polluting factories and punish officials, and even make protected regions off-limits to industries.
The National People's Congress, China's legislature, will consider the amendments during its latest bimonthly session, which runs until Thursday this week, according to Chinese news agency Xinhua.
"China's new environmental regulations would limit steel production capacities, as steel plants are being held responsible high pollution in the country. This will lead to slowdown in demand for ore," Giriraj Daga, senior analyst with Mumbai-based brokerage Nirmal Bang Securities, said.
Some experts said Chinese steel mills would avoid importing low-grade ore with Fe content below 46-48%. High silica and alumina content in such iron ore requires steel mills to use excess coal and energy. Goa ore, however, is generally above 50% Fe.
P K Mukherjee, former executive director of Sesa Sterlite, said winning back the customers would be a big challenge for Goa miners as the customers have shifted to different ore mix for their blast furnaces.
"The miners will have to fight hard and may even need to provide huge discounts for gaining back customers," he told dna.
According to Daga, new demand for Goa ore would mainly go to larger players like Sesa Sterlite due their clout and brand name, where as small player may even find difficult to survive.
India was the world's third-largest iron-ore exporter after Australia and Brazil until two years ago.
India exported 118 million tonne ore in 2009-2010. It plummeted to around 15 mt in the last fiscal, after the apex court banned mining in Karnataka and Goa to curb rampant illegal mining of ore.
Back home too, there are not many takers for Goa's lower grade ore. In the past two e-auctions of about 1.62 mt ore, no steel maker had actively participated. Incidently, steelmakers have been lobbying for higher export duties on Goa ore and even demanding export ban due to lower availability of key raw material in the country post mining ban.
Daga said that Indian steelmakers may never use Goa ore as it would involve high transportation and beneficiation cost.
The Goa government had plans to sell 15 mt iron ore lying idle through e-auctions but had to discontinue following sharp fall in price. So far, the auctions have seen high participation from mine owners themselves, in addition to exporters.
Iron ore mining in Goa is likely to start only after monsoon, as the miners will need to get their lease renewed and forest clearances. While the apex court has capped total output of ore at 20 mt, it has not given any clear direction in terms of how each miner would reduce its capacity.
Mukherjee said the state government will have to come up with a model for reduction of capacities. Revealing the plight of miners, Mukherjee said it was increasingly becoming difficult to export ore from Goa as economics of production are not in favour.
"Regulatory costs including high export duty, and now the additional burden of 10% of sales contribution to Goa iron ore fund have simply mad mining uneconomical," he said.
In past when ore exports were booming, miners enjoyed Ebitda margins of as high as 50%. "Now it may come down to a mere 10%," Daga said.