Top court lifts Goa iron ore mining curbs

Tags: News

Move to boost exports; global supply glut may play spoiler

The Supreme Court has lifted an 18-month ban on iron ore mining in Goa, allowing all 90 mines to start operation, but capped the annual output at 20 million tonnes to check illegal activities. The cap will be subject to the final report of a court-appointed panel.

The court on Monday said mining leases that were not renewed post 2007 had expired and, hence, operations in those mines would be illegal. Goa mines produced 45 million tonnes a year before the ban.

The apex court had banned mining in all the 90 mines in the state in October 2012 after the Justice M B Shah Commission probing alleged illegal mining operations pointed out massive irregularities in the industry.

Monday’s order will boost India’s exports, as Goa was exporting almost all of its produce mostly to China before the ban. The slowdown in the Chinese economy, however, raises some uncertainty over demand, as are the surplus supplies from BHP Billiton and Rio Tinto. The two biggest global miners raised output in the past two years.

Shares of Sesa Goa, India’s largest iron ore producer, jumped 7 per cent in Mumbai trading on Monday, after the court order but settled lower at Rs 201.80 apiece, a gain of 4.78 per cent. Sesa Sterlite is based in Goa and will likely see a jump in exports in the coming months, mostly to China.

Graeme Train, a Shanghai-based commodity analyst with Macquarie, told Reuters that 20 million tonnes was not a huge amount, but it would be another contributor to rising supply. “The question to ask is whether Chinese steel mills will be willing to take on the low-grade iron ore from Goa, given Chinese producers’ growing preference for higher quality material in step with Beijing’s anti-pollution campaign,”

At around $117 a tonne, iron ore price has fallen over 13 per cent this year as a slowing Chinese economy curbed demand for the steelmaking raw material.

“Chinese mills are looking for high-grade material and the discount for low-grade material is starting to open up. It will be interesting to see if they (India) can actually get 20 million tonnes into the market,” Train said.

Morgan Stanley expects global seaborne iron ore supply to exceed demand by 79 million tonnes this year, with the surplus doubling to 158 million tonnes in 2015.

Excess supply will affect iron ore price in the global market, but it will help Indian steel firms such as JSW Steel and Tata Steel, which can source good quality iron ore for their plants and export finished produce to high-priced markets like the US. “Tata Steel will benefit due to the higher steel price in the US, where production has moved out and the industry has become dependent on Europe. Tata Steel will benefit from its presence in Europe while JSW Steel, which is mostly dependent on imported iron ore and has to buy at auction, will benefit from the price reduction due to the global supply glut,” said AK Prabhakar, advisor to Anand Rathi Securities.

Shares of JSW Steel rallied 5.23 per cent to Rs 1,097 on Monday, while Tata Steel closed 1.06 per cent higher at Rs 423.

Fimi said the lifting of the mining ban would increase port activity and economic activity in the coastal belt of Goa. “This will revive the mining industry, create employment and boost economic activity,” said R K Sharma, secretary general, Fimi. India was the third-largest iron ore exporter in the world with shipments of over 100 million tonnes a year, mainly to China, before the mining and export bans were clamped in Odisha, Karnataka, Chhattishgarh and Goa. India exported 12.57 million tonnes during the April-February period of 2013-14 against 17.35 million tonnes in the year-ago period.

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