Iron ore offtake has drastically declined in Karnataka during the first quarter despite the state government allowing the steel mills to operate with full capacity during the recent lockdown.
Between April and June 2021, about 2.3 million tonnes out of 8.4 million tonnes put on e-auction were left unsold, which is about 27% of the total quantity. The material was left unsold in Karnataka e-auctions mainly due to the oversupply created by imports from Odisha. The material produced especially from the Chitradurga mines has not been lifted by the end-users, according to data available with the Federation of Indian Mineral Industries (FIMI).
Despite a large quantity of iron ore is available in the state currently, some of the steel mills have imported the raw material from Odisha. It is estimated that around 5 lakh tonnes have been sourced from Odisha during the first two months of the current fiscal, FIMI said in a letter to Pralhad Joshi, Union Minister for Coal, Mines & Parliamentary Affairs.
As a result, the Karnataka government is set to lose an estimated royalty revenue of over Rs 150 crore in this period. In addition to this, the government is also losing contributions from miners towards the SPV fund, district mineral fund (DMF), NMET, and GST revenues, sources told DH.
Karnataka's iron ore production for 2021-22 has been estimated at 43 million tonnes against the maximum demand of 37 million tonnes. The rise in production this year is owing to the reopening of the Donimalai mine by public sector miner NMDC.
Due to the influx of material from outside the state, around 2 million tonnes of iron ore were left unsold during the e-auctions. "This deliberate import of iron ore despite surplus availability within the state puts the domestic industry under undue pressure to reduce the price to achieve the sale of material,” FIMI said.
"This distorted price reduction is a double whammy since it not only reduces rightful contribution to the state exchequer in the form of royalty, SPV, DMF & NMET which is around 30% of sale value but also impacts the bid premium contribution by ‘C’ Category and fresh auctioned miners wherein bid premium is directly proportional to the sales price. Any artificial reduction of the sales price directly affects bid premium," FIMI added in its letter.
The miners’ body has also appealed to the minister to intervene urgently and facilitate a level playing field to Karnataka's iron ore mining sector by allowing free market forces to operate. This will help in restoring the right price discovery mechanism and benefits the state exchequer.
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