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Expiry of iron ore lease in March 2020 may impact non-integrated steelmakers

Jul 6,2019

The merchant mining leases for 50 – 70 million tonnes per annum (MTPA), accounting for 25-35 percent of total iron ore production, is set to expire in March 2020 and may put pressure on non-integrated steel makers in India like JSW Steel and Jindal Steel and Power Limited (JSPL) if the transition after expiry of leases in March 2020 is not smooth.

 

The expiry of mining leases will not be renewed and will be auctioned — according to the amended Mines and Mineral (Development & Regulation) Act, 2015 and lead to supply-side disruption unless the government takes necessary steps to ensure a trouble-free transition.

 

“It could push up iron ore costs for domestic non-integrated steel mills higher by Rs 2,000-3,000 per tonne. Further, if it gets accentuated by the current weakness in the steel market, some players may come under financial stress. JSPL and JSW Steel will be at risk in the near term,” said Motilal Oswal Financial Services in a report while retaining its buy rating on both the firms.

 

JSPL believes that the closure of mines will have limited impact if all remaining mines are mandated to produce as per their Environmental clearances limits.

 

A JSPL spokesperson said, “At present, the government should push for auctions and even if these get completed by December 2020, the rates should not go up for plants which depend heavily on buying. The government has to take firm affirmative action on the above lines to ensure a steady supply of raw material at competitive prices so that the steel industry remains competitive.”

 

However, Motilal Oswal sees environment and forest clearance, land acquisition and exploration as the major bottlenecks for a smooth transition after the expiry of leases. “The integrated operations of SAIL and Tata Steel could find favor with investors, at the cost of non-integrated players like JSW and JSPL,” said the report.

 

A JSW Steel spokesperson declined to offer any comments. Industry bodies ASSOCHAM and Indian Chambers of Commerce have written to the government seeking early auction of the mines for a smooth transition.