Mineral deposits form the backbone of a country’s natural resources. But they cannot be replenished once they are removed, since they have been formed through geological processes over millions of years.

It is, therefore, very important for a country to exploit its mineral deposits in a manner that gets it maximum economic benefit. Selling as mined minerals is the easiest but least beneficial way of exploiting mineral resources. Converting them through processing to commercial intermediate commodities yields more value and converting these into consumer products gives the highest value.

Countries which do not derive maximum advantage from their mineral resources do so for two main reasons — either they do not have the capability (in terms of technology or finance or management) or, the persons in control  are ignorant or greedy.

Many African and Central American countries belong to these categories and are allowing their mineral treasures  to be taken away in an as mined condition for a song by outsiders. The scenario is better in India.

Thanks to the presence of a sizeable entrepreneurial class, widespread technical education and a stable democratic government, for most minerals there is value added exploitation within the country. Unfortunately, this is not being followed in the exploitation of a major metal bearing mineral — iron ore.

The growing need

Among the major inputs that go into steel making, India has only two which make its steel industry globally competitive — its iron ore and its low-cost labour.

The jump in India’s GDP growth rate during the current decade has seen   domestic steel consumption touch about 50 MT (million tonnes) in 2007 as compared to 30 MT in 2001. As India gears up for a GDP growth rate of 9 per cent per year during the next decade, the domestic demand for steel is likely to touch 150 MT by 2020.
A number of new greenfield and brownfield expansion projects have been proposed, which will raise steel making capacity in India according to this demand forecast.

Since about 1.6 MT of iron ore products are needed to produce 1 MT of steel, the Indian steel industry will need 300 MTY of iron ore to feed its capacity by 2020. Instead of conserving its ore reserves for this huge domestic requirement in the future, India has been accelerating the export of ore during the last decade, spurred by the lure of high international ore prices thanks to the huge demand from the Chinese steel industry.

The international price of iron ore has surged from $35 per tonne in 2001 to $170 per tonne ( spot price) at present. Last year, of the approximately 200 MT mined in India, about 120 MT was exported.

Wrong picture

There is a myth that has been assiduously propagated by the mining lobby that India abounds in iron ore reserves. We have only around 12 to 13 billion tonnes of available reserves of iron ore (both haematite and magnetite) in this country, the rest being in environmentally fragile and sensitive forest areas and therefore not available for mining. In fact, India has only about 4 per cent of the world’s iron ore reserves. Ukraine, Australia, China, Brazil, Kazhakastan, Russia and USA have much larger reserves than India.

At the rate we are currently exporting, by 2020 the remaining iron ore reserves will meet the steel industry’s requirement for hardly another 25 years and India may well become an iron ore importer.

Most unfortunate is that this short sighted export or iron ore is being undertaken, not just by private mining companies out to make a quick buck but also the Central Government itself in the form of the mining PSU, the National Mineral Development Corporation, which accounts for about 7 per cent of the iron ore exported from the country.

It is a measure of our short-sightedness vis-à-vis China that while we, with our limited iron ore resources are merrily exporting away our assets, China, which possesses 5 times our reserves, is heavily importing from us and conserving its own for the future.

Add more value

The consumption of steel in the country has now outstripped production with the result that around 6 MT of steel is expected to be imported in 2007-08. Ironically, we are exporting ore to China at around        $100 per tonne and importing steel at more than $900 per tonne. The iron ore export lobby argues that the domestic steel industry does not need ore containing less than 60 per cent iron or very fine ore dust.

This is not true. The steel industry has taken to blending low grade and high grade ores in order to make the total ore reserve last longer. Ore fines are nowadays being pelletised to be used as direct feed into blast furnaces or for conversion into sponge iron.

The Indian Government must realise that globally, the iron ore supply sector is consolidating, with most of the capacity in the control of a few majors. Steel companies around the world are aggressively vying with each other to acquire the few iron ore resources available in the market. In such a situation, Indian steel companies will have to pay blackmail rates in the future for purchasing iron ore from the international market.

Avoids to impose any duty

There is, therefore, a strong case here for conserving every bit of our own iron ore resources and phasing out exports in the next five years. It is unfortunate that the Union Finance Minister chose to avoid imposing a duty on iron ore exports in this year’s Central Budget as a first step in curbing these exports.

The cost of ore to an Indian steel mill from its captive mine is one-fourth to one-fifth the international merchant price. Therefore, instead of extending the mining leases of ore exporting companies, Government policy should favour making more ore blocks available to the domestic steel industry for captive mining so that it can retain its competitive advantage.

While allotting such leases, a transparent principle that should be followed by the Central and State governments is to give first priority to those steel companies which have already got integrated production in place within the country and have firmed up expansion plans, such as SAIL, Tata Steel, Vizag Steel, JSW, Ispat, Essar Steel and Bhushan Steel. The new entrants should get second preference, no matter how internationally prominent they are.

The writer is a former journalist and can be reached at: nnsachi@yahoo.com.