The Supreme Court on Friday ordered temporary closure of around 26 mainstream mines in Odisha due to non-renewal of leases. The mines include those operated by Tata Steel and SAIL.
These mines come under the category of 'deemed second or subsequent renewal'. Mines in Goa that were operating under the similar category were earlier cancelled by the apex court.
On April 22, the apex court had shocked iron ore miners by stating that all mine leases in Goa expired in 2007 and mining activity carried out post this (second renewal) were to be considered illegal. These 26 mines include six mines of Tata Steel, two of Steel Authority of India, two mines by state-owned Orissa Mining Corporation and one by Aditya Birla Group's Essel Mining.
While the exact Supreme Court order could not be retrieved immediately, industry officials told dna that the order would impact around 30-35 million tonne of ore production in Odisha. The court has however directed the state government to renew the lease licence and issue required clearances within six months.
"The biggest impact of the order will be on Tata Steel and SAIL. While Tata Steel has one lease which would be able to continue production, it may not produce more than 1.2 MT. Similarly, SAIL also has two clean leases which may be able to produce around 3 MT," Prakash Duvvuri, head of research at OreTeam said.
Tata Steel shares tumbled more than 4% on Friday following the reports of mine closure. Koushik Chatterjee, group executive director (finance and corporate), on Wednesday had showed confidence that their mines were operating with all statutory clearances and like any good company it had plan B. Tata Steel comments could not be obtained till going to press.
"Tata steel sources nearly 75% of its iron ore requirement from Odisha and rest from Jharkhand. While exact details on iron ore inventory is not known, they may have stocks worth 2-3 months, so they may not need to cut production. However, beyond that the company would be dependent on open market for ore supply," Gautam Chakraborthy, senior analyst with Emkay Global Financial, said.
Most analyst did not expect any downgrade in stock immediately and were hopeful that the company would be able to get clearances within six months. However, the company's operating margins which saw a major boost in the fourth quarter would be hit. The steelmaker may also miss it's yearly production volume guidance of 9.2 MT, Chakraborthy said.
But the bigger worry for steelmakers like Tata Steel and SAIL is that that they may not be able to source its complete requirement from open market in Odisha. Post the ban, ore production in Odisha would drop to 30-35 MT from 72 MT in previous year.
"Such huge requirement could either be met by import or through NMDC, which is the biggest iron ore miner in the country. The state government may have to even resort to requesting NMDC to raise their production to serve these companies until then, otherwise steel price could hit the roof," Duvvuri said.
The temporary Odisha mining ban would also hit the iron ore exports of the country, which are already reeling under previous mining bans in Karnataka and Goa. According to Duvvuri, the state may channelise the ore that were earlier going for exports, to the local steelmakers. Experts don't expect any sudden spurt in local iron ore prices. The prices are likely to rise with a lag effect of minimum two weeks.