Source: The Hindu Business Line
With the busy season on for steelmakers, stocks of steel companies are back in focus.
Take, for instance, public sector behemoth Steel Authority of India, which is attracting analysts’ attention (with a medium-term perspective) though it made losses in the September quarter.
Clearly, analysts are seeing good times ahead and therefore, have upped their price targets on the stock.
This however, calls for adequate availability of raw materials — iron-ore in this case – at reasonable prices. Not just in the short run but also in the long run, the domestic steel sector needs an assured supply chain ecosystem of iron ore.
FEELING THE PINCH
This is where miners from Karnataka are feeling the pinch.
They are bogged down by the cap imposed by the Supreme Court and an environment where players like JSW Steel (with the biggest steel mill in a single location) in Karnataka planning to utilise its full capacity, but not able to do so because of unsure supply of iron ore.
“The cap on production was imposed in 2011 by the Supreme Court. Imposing it at that point in time was right since it was a war-like situation. But six years have passed since then. India is growing. It needs steel. And Karnataka can contribute. But the State has been reduced to a position of importing iron ore from South Africa, which is a hugely carbon negative exercise. There have been huge job losses in Karnataka due to this development,” explained Basant Poddar, Mentor, Federation of Indian Mineral Industries (FIMI) and MD, Mineral Enterprises Ltd.
“We are constantly knocking on the doors of the SC,” he added.
Experts believe that after the Supreme Court ban and monitoring, companies are now complying with the environmental norms.
It is understandable that the committee appointed by the apex court is apprehensive, but the cap needs to be raised, they argue. And in the last six years since the ban, a lot of work has been done to comply with the environmental norms.
A top official of a global miner who wished to remain anonymous said: “The government has come up with transparent policies and using the best technology to keep track of the mining industry. Thrust must be given to the iron-ore sector to meet the steel vision of India to produce 300 million tonnes (as enunciated by Prime Minister Narendra Modi) that will generate more revenue and create more employment.”
The steel industry is a vital cog in the India growth story as it has one of the highest economic linkages to overall GDP. Steel has an output-multiplier effect of around 1.4 times on GDP. Thus, if the steel industry grows by 1 per cent, its proportionate impact on GDP would be 1.4 per cent.
The decision on removing, enhancing or maintaining status quo on iron ore production is pending with the SC, the outcome of which will have a bearing on the fortunes of steel mills in Karnataka and some of the neighbouring States too.
“We have asked for only 10 per cent increase from the current production levels, that is, to 33 million tonnes from 30 million tonnes now. Even the Central Empowered Committee set up by the SC has recommended moving it up to 35 million tonnes from 30 million tonnes,” Poddar pointed out.
“That’s not all. There is a fund of about ₹13,000 crore lying with the Monitoring Committee, which is supposed to be used for mitigation of environmental damages. But not a single paisa has been spent yet,” said Poddar.
Movement on this front is vital, he emphasised.