The Federation of Indian Mineral Industries (FIMI) on April 6 has urged the central and state governments to remove trade restrictions imposed exclusively on iron ore trade in Karnataka under the new e-auction mechanism.
Mines in Karnataka are not allowed to sell and take commercial advantage of iron ore mined out of the state. The sale of iron ore must be conducted through institutionalised e-auctions only and buyers must conform to the eligibility criteria, which is serving the domestic-end users. Export of the iron ore and pellets produced in Karnataka is prohibited.
FIMI urged the government to allow supply to other states. Currently, many mills in other states import iron ore consistently and in substantial quantities, when there is an excess of around 10mn mt of iron ore in Karnataka. The yearly production capacity of these mines is around 45mn mt against the demand of 36mn mt. This causes an artificial supply-demand gap resulting in a huge difference between iron ore prices in Karnataka and the international market.
The FIMI statement said, due to restrictions on the Karnataka-based miners, the prices in Karnataka remains drastically low, which is almost 200pc below global prices. Iron ore in the state is sold at $50-55/mt against a global average of $155-160/mt. These rules are impacting the profitability of miners and the sentiments of investors in the industry. The restrictions were imposed in 2011 to exercise proper monitoring and handle the extraordinary situation that existed then and have served their purpose. Now it is time to revisit the same, urges FIMI.
The existing iron ore mining operations in the state are not viable with a cap on production and e-auction mechanism leading to the unfair valuation of iron ore. This situation has led to not only lower royalty and other levies but also reduces the bid premium on ore extracted from recently auctioned captive mines. Over a five-year period, gross loss to Karnataka state due to these restrictions is approximately Rs30,000 crore ($4,045mn), as per industry estimates.
In the past, FIMI has been constantly working on the betterment of the iron ore industry and had taken a vital role during auctions of mines in India and recent amendments in the Mines and Mineral Development and Regulations (MMDR) act. As per the MMDR act applicable from 28th of March, royalty on coal and iron, manganese and chromite ores increased by 150pc to 250pc in addition to existing royalties.