It’s Ore Crunch 2.0 for Karnataka steel companies

Karnataka steelmakers fear that a severe iron ore crisis cannot be avoided unless certain banned mines (under categories A and B) resume operations at the earliest.

The imminent crisis has roots in the Supreme Court or SC-ordered bans on mining in the three ore-rich districts of Bellary, Tumkur and Chitradurga in July-August 2011.

Excessive mining with disregard for the local environment led to blanket bans on mining. The bans dealt a severe blow to regional steelmakers that depend heavily on the Karnataka ore.

In September 2011, to mitigate the impact of the bans, the SC allowed e-auctions of 25 million tonnes of ore that were already mined. The e-auctions are conducted by an SC-formed Monitoring Committee functioning via state-owned MSTC Limited.

Till date, some 20 million tonnes of the 25 million tonnes of ore have been e-auctioned already.

That is to say, only about 5 million tonnes remain to be e-auctioned. And these will finish in 45 days.

Chances are banned mines would not be able to resume operations so soon. Analysts said the situation could turn tricky.

The MD of an affected steelmaker said even state-owned NMDC, which was allowed to mine 1 million tonnes per month, has not been able to reach the level yet. “NMDC’s output is not adding much to our production,” he lamented.

Mines that used excessive land without resorting to illegal mining were labelled category A, while mines that were guilty of some illegal mining were classified under category B.

Both these categories can mine to a limited extent, provided they meet certain standards and conditions. They need to obtain court approval for their reclamation and rehabilitation (R&R) plan first before resuming mining.

P K Mukherjee, MD of Sesa Goa, recently said the company has submitted an R&R plan which will need the environment ministry’s clearance. “We hope to begin mining in Karnataka soon. When? Well, my guess would be as good as yours,” he told media recently.

“We are hoping that the mines will resume well before the existing stocks sell out,” said a top official at a Karnataka steelmaker.

Time is not the only problem here. Apparently, the quality of the e-auction iron ore is so poor that steelmakers require high energy to convert it into saleable steel, which inflates production costs.