Karnataka-based iron and steel companies are approaching a critical stage of closure of their manufacturing activities in the next 2-3 days following the Supreme Court pronouncement last Friday halting iron ore mining activities in the Bellary region and severely crippling several neighbouring States that depend on Bellary iron ore affecting an aggregate 20 million tonnes per annum capacity.
No iron and steel manufacturer in this belt enjoys captive iron ore facility and instead buys its entire requirement from the open market. Since steel making is a continuous process and cannot be switched on and off abruptly, alarm bells began to ring. The abrupt or long term stoppage of blast furnace and coke ovens could be disastrous. Apart from a huge financial impact, the recovery may take 8-12 months. There are also safety concerns to be addressed if the steel production has to be halted quickly.
The apex court has directed various Central Ministries such as Department of Mines, Environment, Steel and Commerce & Industry to submit an interim report inter-alia indicating the Iron Ore requirement of the Steel Industry in India. The affected iron and steel manufacturers feel that the time is fast running out, even after curtailment of production these companies have very low levels of inventory which may not last more than 2-3 days of production.
“BCIC fully support and welcome the steps initiated by the Honourable Supreme Court for curbing illegal mining and conservation of the environment. However, suspension of iron ore mining and transportation in Karnataka would result in grave implications to the Iron & Steel Industry in particular and the Indian Economy in general. This will lead to, amongst others, high inflation, manpower layoff, idling of huge investment, socio-economic unrest in the Region and loss of Revenues to the Central & State Government”.
Such closure of iron ore mining, it is added, would have wider repercussions much beyond Karnataka State.
The State supplies iron ore to numerous large Iron and steel plants located in neighbouring Maharashtra, Gujarat, Andhra Pradesh and Tamil Nadu as well.
Total iron and steel produced in the Karnataka is to the tune of 16 Million Tons per Annum (MTPA), constituting about 24% of the Country’s total iron and steel production, which is 66 MTPA. Other States, mentioned above and dependent on Bellary ore, have a manufacturing capacity of 4 MTPA. Hence, a total of 20 MTPA of iron and steel making capacity in India is dependent on iron ore from Karnataka.
A suspension on iron ore mining in India would have a serious impact on the national GDP by 2 per cent given its 6.2 per cent weightage in the Index of Industrial Production. With 25% of steel production being forced to shut down in Karnataka, the GDP will be negatively impacted by 0.5% which amounts to $8.5 billion (at factor cost). Iron and steel shortage would lead to a cascading effect on the price of automobiles, consumer durables, construction, infrastructure etc. will also push up the associated costs. It will also delay implementation of ongoing projects as well as addition of new capacities/projects.
India, already a net importer of steel, has imported almost 7 million tons of steel last year. Import will increase by additional 16 million tons caused by suspension of iron ore production in Karnataka. This will cause additional foreign exchange drain of $12 billion per year which is 3.9% of current country’s forex reserve. Added to this it will be a loss to the tune of Rs 10,000 Crores per year to the exchequer as the Steel industry in the above mentioned region is a major contributor to the exchequer today.
Other potential victims of this suspension of mining activities would be logistics service providers: both rail and road. Banks which have a large exposure to Bellary region steel makers would also be affected. Overseas contractual failures may lead to litigation and impair the long term understanding with suppliers. Keeping the overall potential impact of the suspension on iron ore mining in the Bellary region, immediate relief is required.
In view of the above, the Chamber earnestly appeal to the State Government to appreciate the genuine concerns of the Steel industry and understand the gravity of the situation and take a holistic view on the suspension of iron ore mining considering the huge investment and employment of lakhs of workers being deployed in the above industries and restore mining activities in Bellary immediately.
