April 18, 2013 4:20 pm

India partially lifts mining ban

India Iron Ore Mining©Bloomberg

India’s Supreme Court on Thursday further relaxed its previous blanket ban on mining in the mineral-rich southern state of Karnataka, providing some limited relief to the country’s crisis-hit iron ore and steel industries.

A series of corruption scandals led Indian judges to stop all mining in the state in 2011, which alongside a related ban last year in the smaller coastal state of Goa sharply cut national iron ore production and reduced exports of the mineral to almost zero.

The court’s decision now allows production to resume in 63 mines which had been classified as having no or limited problems with illegal mining, adding to the more than a dozen operations that had already been allowed to restart production last year.

However, the court cancelled the licences of a further 49 mines belonging to a third category, judged to have committed more serious mining infractions.

Although India boasts plentiful iron ore supplies, its corruption-related production crisis has badly hurt steel producers like JSW Steel and miners including Vedanta Resources subsidiary Sesa Goa, both of whom have major operations in Karnataka.

Data this week showed India’s overall mining production fell 8 per cent in February compared to the same month a year before, the third consecutive month of decline, providing further evidence that the ban is denting India’s already sagging industrial output.

The restrictions have also spilled over into the global economy, where lower supply from Asia’s third-largest economy helped to push up the global price of the commodity. Earlier this year, world prices soared to almost $160 a tonne, up more than 80 per cent since its September low, hitting the margins of international steel makers.

Seshagiri Rao, joint managing director of JSW Steel, welcomed the supreme court’s decision, saying: “This relief not only provides a breather to the steel industry in the region, but also assists in the providing of direct and indirect employment.”

However analysts cautioned that the move was unlikely to lead to an immediate ramp up in production.

“Generally this is good news for the steel industry, which has been starving for a good supply of iron ore”, said Anjani Agrawal, head of mining and metals at Ernst & Young in India.

“But mines take a lot of time to come back once you close them, while even the mines that had already been allowed to start haven’t bounced back yet. So it will take time, and production is never again going to be as high as it was in 2011.”

Indian miners are now watching carefully for signs that the supreme court will move on to consider the case of Goa, which is historically the source of nearly all of India’s iron ore exports, and where mining is still entirely banned.

“Exports are going to be absolutely zero from Karnataka,” said Ambar Timblo, managing director of Fomento Resources, Goa’s second-largest miner by revenue.

“Rail freight rates make exports from there financially unviable, while all available new supplies are going to go to the domestic steel industry.”

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