Why the Vedanta chief said India’s iron ore industry is ‘dying’ — and why the govt disagrees

He argued that though the authorities introduced the auction authorities to summation transparency successful mining, the constricted fig of blocks connected offer, coupled with contention from alloy manufacturers, is creating a ‘huge demand-supply mismatch,’ driving bids sky-high. “The bid is based connected however overmuch gross you volition stock with the government. Since auctions were introduced, the mean for robust ore is 118%,” Agarwal claimed.

Roughly 12 hours later, the mines ministry dismissed Agarwal’s remarks arsenic “completely misleading”. “No mining institution successful India shares 100% of institution gross with the Government,” its authoritative X relationship said.

The station clarified that auction bids find the monthly premium a institution pays to the authorities authorities arsenic a percent of the mean ex-mine terms of robust ore, excluding expenditure connected logistics and connected worth summation for alloy production. “Auction premium is not paid retired of full gross of the company,” the ministry said.

Auction premiums surge

While the ministry correctly pointed retired that auction premiums are applied to the mean ex-mine terms of robust ore, not a mining company’s full revenue, premiums for blocks auctioned since 2016 person risen sharply. High auction premiums strain nett margins, particularly for mining companies not integrated with downstream worth chains.

Since the Mines and Minerals (Development and Regulation) Amendment Act, 2015 introduced the auction regime, 121 robust ore blocks person been auctioned crossed India. Of these, 35 blocks requiring further exploration were awarded nether composite licences (CL).

For the remaining 86 blocks awarded nether mining leases (ML), the mean auction premium stands astatine 119 per cent, according to an investigation of authoritative auction information by The Indian Express. This fig has surged implicit the years—from 86 per cent for the archetypal 8 blocks auctioned successful 2016 to a whopping 171 per cent for the astir caller 16 blocks auctioned successful 2023.

Blocks connected connection person grown

In effect to Agarwal’s assertion of a demand-supply mismatch owed to constricted auctioned blocks driving up premiums, the mines ministry countered that 17 blocks are presently nether auction, with 60 much handed implicit to authorities governments. “It is truthful incorrect to accidental that lone constricted blocks are connected offer,” the station said.

Between 2020 to 2023, the ministry auctioned 97 robust ore blocks compared to 24 blocks successful the preceding 4 years. In the 4 years anterior to 2016, earlier the auction authorities was introduced, lone 4 blocks were allotted to mining companies. In 2024, however, nary blocks person been auctioned yet.

Still, the fig of disposable blocks has importantly accrued nether the auction regime. However, experts reason that offering adjacent much blocks could assistance chill premiums, providing alleviation to smaller mining companies and those not integrated with downstream operations.

The ministry besides noted that India’s robust ore accumulation has risen from 129 cardinal tonnes (MT) successful FY15 to 274 MT successful FY24. “India produced 144 cardinal tonnes of alloy successful FY 2023-24 for which robust ore request was easy met and additionally 46 cardinal tonnes of robust ore was exported by India. Thus, determination is nary shortage of robust ore successful the state to enactment the robust and alloy production,” it added.

Hurts non-captive mines

A 2023 marketplace survey by the Competition Commission of India (CCI) recovered that the stock of captive mines successful the full fig of robust ore mines has risen implicit the years. Steel manufacturers with captive mines tin sorb higher auction premiums done worth addition, dissimilar companies operating non-captive mines.

“The publication of robust ore successful the outgo of alloy produced is astir 15%. So, successful lawsuit of a alloy institution which uses robust ore produced from its ain mine, it pays lone a tiny percent of full worth of alloy produced arsenic auction premium to unafraid assured proviso of robust ore for moving its alloy plant,” the ministry said successful its post.

In contrast, the rising auction premiums compression the margins of mining companies not integrated with alloy plants oregon those focused connected exports. In FY24, astir 46 MT of robust ore was exported retired of India, which is besides the world’s 4th largest shaper of the cardinal commodity.

The ministry besides rejected Agarwal’s proposal for a 50 per cent headdress connected auction premiums, stating that “investment successful robust ore blocks is debased hazard task and hence, determination is nary request to spot immoderate headdress connected robust ore gross share”.

Competition concerns

The CCI survey besides highlighted that large-scale producers gaining power implicit the robust ore proviso concatenation done captive mines tin negociate “fluctuations successful earthy worldly prices better”.

“This has created contention concerns owed to differential outgo operation amongst alloy producers with and without captive mines. It is further observed that the robust ore blocks auctioned aft 2015 are dominated by immoderate companies similar JSW, which accounts for astir 47 percent of the full quantity of the reserves auctioned,” the survey noted.

Of the 4,300 MT of robust ore reserves auctioned nether ML since 2016, 35 per cent went to JSW Steel Ltd, 11 per cent to Jindal Steel and Power Ltd—both vertically integrated alloy players. Rungta Mines Ltd and Tata Steel Ltd secured 9 per cent and 7 per cent, respectively, portion Vedanta Ltd acquired lone 94 MT, oregon astir 2 per cent. The remaining 36 per cent of reserves were awarded to assorted different players, tiny and large.

Slow excavation operationalisation

“Not surprisingly, astir of the blocks person not been operationalised. Operating companies are adjacent considering returning immoderate of the blocks due to the fact that of unviability,” Agarwal besides said successful his post.

In response, the mines ministry said 34 of the 119 auctioned robust ore blocks person been operationalised, little than 30 per cent. The ministry besides expects different 21 blocks to go operational successful the adjacent future.

“It is incorrect to accidental that non-operationalisation of blocks is owed to precocious auction premium committed by the bidders during auction. Operationalisation of the blocks requires obtaining assorted statutory clearances specified arsenic situation clearance, wood clearance, etc. and onshore acquisition which usually takes 3-7 years clip aft auction, depending connected level of exploration of the block. Since, astir of the blocks person been auctioned during the past 3 years, it volition instrumentality different 2-5 years to operationalise these blocks,” the ministry said.