IMPERATIVES FOR IMPERATIVES FOR IRON ORE EXPORTSIRON ORE EXPORTS

K K KUMARK K KUMAR

GENERAL MANAGER (M&L)GENERAL MANAGER (M&L)

MSPL LIMITEDMSPL LIMITED

THE CONTEXTTHE CONTEXT

Recent call by a section of industry to ban iron ore exportsRecent call by a section of industry to ban iron ore exports

Inadequacy of iron ore reserves – fact or fiction Inadequacy of iron ore reserves – fact or fiction

Sustainability of iron ore exportsSustainability of iron ore exports

Economic rationale for exportsEconomic rationale for exports

Lack of enabling environment for large scale

Commercial mining

Low capital investment in exploration

Restrictive resource allotment reflected in

smaller leases

Incomplete discovery of resources

INDIAN MINING INDUSTRY–PRESENT SCENARIOINDIAN MINING INDUSTRY–PRESENT SCENARIOIndian Mining industry in a negative loop

Smaller contribution by mining sector is a drag on national economy despite large resource base

Drastic policy changes a must to break this negative loopDrastic policy changes a must to break this negative loop

Reflects lowresources base

As on As on 1.4.19801.4.1980

Produced Produced 1980-19901980-1990

As on As on 1.4.19901.4.1990

Produced Produced 1990-20001990-2000

As on As on 1.4.20001.4.2000

Produced Produced 2000-20052000-2005

As on As on 1.4.20051.4.2005

HeamatiteHeamatite 1146911469 1219712197

(+728)(+728)1142611426

(-771)(-771)1463014630

(+3204)(+3204)

MagnetiteMagnetite 60956095 1059010590

(+4495)(+4495)1068210682

(+92)(+92)1061910619

(-63)(-63)

TotalTotal 1756417564 470470 2278722787

(+5223)(+5223)656656 2210822108

(-679)(-679)532532 2524925249

(+3141)(+3141)

Qty: Million tonnes

Figures in parenthesis indicate decrease (-)/increase (+) in resourcesNotes: (1) These resources do not include around 1000 million tones of haematite iron ore recently discovered by DMG, Chattisgarh in Kabirdham district. (2) Above resources are with a cut-off grade +55% Fe and roughly upto 50 metre depth estimated with sparce and far-between drilling.Source: Indian Bureau of Mines, Nagpur

RESOURCESRESOURCESRESOURCESRESOURCES

RESOURCES- INDIAN CONTEXTRESOURCES- INDIAN CONTEXT

India has 25.2 billion tons of known iron ore resources as on India has 25.2 billion tons of known iron ore resources as on 1.4.2005.1.4.2005.

• Added 6000 million ton in between 1980 and 2000 even Added 6000 million ton in between 1980 and 2000 even after mining 1126 million tonafter mining 1126 million ton

• Added 3141 million ton in between 2000 and 2005 even Added 3141 million ton in between 2000 and 2005 even after mining 532 million ton.after mining 532 million ton.

• As Mining intensifies, more exploration and discovery of As Mining intensifies, more exploration and discovery of resourcesresources

EXPLORATION – INDIAN SCENARIOEXPLORATION – INDIAN SCENARIO

Exploration activities have been minuscule, confined toExploration activities have been minuscule, confined to

• Cutoff grade of 55%Cutoff grade of 55%• Average Depth of 60 metersAverage Depth of 60 meters• Lump finding (as fines has limited usage in the country)Lump finding (as fines has limited usage in the country)• Conventional method of explorationConventional method of exploration

No state of the art technologies like remote sensing etc. No state of the art technologies like remote sensing etc. is usedis used

Exploration conducted till 1980Exploration conducted till 1980

• Thereafter resources is computed based on data furnished Thereafter resources is computed based on data furnished by companies in their annual returns to IBMby companies in their annual returns to IBM

ADEQUACY OF RESERVESADEQUACY OF RESERVES

HODA committee concluded that export canalization HODA committee concluded that export canalization and licensing to be discontinued, reserves are and licensing to be discontinued, reserves are adequate and there is no basis for basing any policy adequate and there is no basis for basing any policy changes on inadequacy of reserves and the position changes on inadequacy of reserves and the position to be reviewed after 10 yearsto be reviewed after 10 years

Degree of finiteness of the reserves can only be Degree of finiteness of the reserves can only be assessed after complete exploration. But the assessed after complete exploration. But the ‘finiteness ‘ issue has been brought to the forefront ‘finiteness ‘ issue has been brought to the forefront even before exploring the reserves potentialeven before exploring the reserves potential

Both domestic and export demand can be metBoth domestic and export demand can be met

The Take awayThe Take away

Resources have increased over a period of time in-spite of mining Resources have increased over a period of time in-spite of mining

large quantity for domestic consumption and exports – indicating large quantity for domestic consumption and exports – indicating

that resources are not static and are dependent on extent of that resources are not static and are dependent on extent of

exploration.exploration.

Strict reliance on UNFC classification based on “economic criteria” in Strict reliance on UNFC classification based on “economic criteria” in

fast changing economic conditions is not appropriate. fast changing economic conditions is not appropriate.

In China, the fact that even 10-15% Fe grade iron ore is being mined In China, the fact that even 10-15% Fe grade iron ore is being mined

clearly establishes the importance of dynamically changing clearly establishes the importance of dynamically changing

economic scenario that impacts the reserve-resource definitions.economic scenario that impacts the reserve-resource definitions.

INADEQUACY OF RESOURCESINADEQUACY OF RESOURCES

- A FICTION- A FICTION

STATE-WISE PRODUCTION : STATE-WISE PRODUCTION : RATIO OF LUMPS, FINES AND CONCENTRATESRATIO OF LUMPS, FINES AND CONCENTRATES

Quantity: `000 tonnes

SOURCE Indian Bureau of Mines, Nagpur Figures in paranthesis indicate the %age contribution of lumps, fines and concentrates respectively in the total production Note: p - provisional figures

2003-042003-04 2004-052004-05 2005-06(p)2005-06(p)

LumpLumpss

FinesFines Conc.Conc. TotalTotal LumpsLumps FinesFines Conc.Conc. TotalTotal LumpsLumps FinesFines Conc.Conc. TotalTotal

ChhattisgarhChhattisgarh 1070710707(46)(46)

1265412654(54)(54)

-------- 2336123361(100)(100)

1034210342(45)(45)

1277612776(55)(55)

-------- 2311823118(100)(100)

1130111301(46)(46)

1344913449(54)(54)

-------- 2475024750(100)(100)

GoaGoa 38913891(19)(19)

1524615246(75)(75)

11091109(6)(6)

2024620246(100)(100)

42434243(19)(19)

1752617526(77)(77)

903903(4)(4)

2267222672(100)(100)

43284328(18)(18)

1844518445(78)(78)

971971(4)(4)

2374423744(100)(100)

JharkhandJharkhand 64866486(44)(44)

81968196(56)(56)

-------- 1468214682(100)(100)

75387538(45)(45)

91819181(55)(55)

-------- 1671916719(100)(100)

66756675(38)(38)

1076010760(62)(62)

-------- 1743517435(100)(100)

KarnatakaKarnataka 89028902(28)(28)

1764317643(56)(56)

50905090(16)(16)

3163531635(100)(100)

1228812288(32)(32)

2132421324(56)(56)

43504350(12)(12)

3796237962(100)(100)

1133211332(33)(33)

1941519415(58)(58)

29222922(9)(9)

3366933669(100)(100)

OrissaOrissa 1857318573(59)(59)

1271512715(41)(41)

-------- 3128831288(100)(100)

2288422884(55)(55)

1886618866(45)(45)

-------- 4175041750(100)(100)

2777727777(56)(56)

2210322103(44)(44)

-------- 4988049880(100)(100)

OthersOthers 401401(25)(25)

12251225((75)((75)

-------- 16261626(100)(100)

857857(23)(23)

28642864(77)(77)

-------- 37213721(100)(100)

12301230(25)(25)

37283728(75)(75)

-------- 49584958(100)(100)

ALL INDIA ALL INDIA TOTALTOTAL

4896048960(40)(40)

6767967679(55)(55)

61996199(5)(5)

122838122838(100)(100)

5815258152(40)(40)

8253782537(56)(56)

52535253(4)(4)

145942145942(100)(100)

6264362643(41)(41)

8790087900(57)(57)

38933893(3)(3)

154436154436(100)(100)

Figures in paranthesis indicate the %age contribution of captive and non-captive by public and private sectors respectively in the total production.Source: Indian Bureau of Mines, Nagpur Note: p - provisional figures

Qty.:Million tonnes

2003-042003-04 2004-052004-05 2005-06(p)2005-06(p)

SectorSector CaptiveCaptive Non-Non-CaptiveCaptive

TotalTotal CaptiveCaptive Non-Non-CaptiveCaptive

TotalTotal CaptiveCaptive Non-Non-CaptiveCaptive

TotalTotal

Public Public SectorSector

23.4323.43

(40.72)(40.72)34.1134.11

(59.28)(59.28)57.5457.54

(100)(100)22.5322.53

(39.51)(39.51)34.5034.50

(60.49)(60.49)57.0357.03

(100)(100)24.1924.19

(41.13)(41.13)34.6234.62

(58.87)(58.87)58.8158.81

(100)(100)

Private Private SectorSector

10.0610.06

(15.41)(15.41)55.2455.24

(84.59)(84.59)65.3065.30

(100)(100)12.6712.67

(14.25)(14.25)76.2476.24

(85.75)(85.75)88.9188.91

(100)(100)10.8910.89

(11.39)(11.39)84.7484.74

(88.61)(88.61)95.6395.63

(100)(100)

TotalTotal 33.4933.49

(27.26)(27.26)89.3589.35

(72.74)(72.74)122.84122.84

(100)(100)35.2035.20

(24.12)(24.12)110.74110.74

(75.88)(75.88)145.94145.94

(100)(100)35.0835.08

(22.71)(22.71)119.36119.36

(77.29)(77.29)154.44154.44

(100)(100)

PRODUCTION AND DOMESTIC CONSUMPTIONPRODUCTION AND DOMESTIC CONSUMPTIONPRODUCTION AND DOMESTIC CONSUMPTIONPRODUCTION AND DOMESTIC CONSUMPTION

• Increase in iron ore production followed demand from China which led to opening up of closed mines and optimum utilisation of working mines.• India acts as a swing producer to fill in supply gap from Brazil and Australia

60% of the iron ore production is in the form of fines which at present do not have much domestic demand. Another 10-12% becomes fines while processing lumps.

Thus around 72% of the total iron ore production is fines only.

2001-022001-02 2002-032002-03 2003-042003-04 2004-052004-05 2005-062005-06

Steel :Steel :

A-Main ProducersA-Main Producers 1776217762 1898218982 2001220012 2001520015 2169421694

B-Secondary ProducersB-Secondary Producers 1020210202 1146111461 1423614236 1847118471 1996619966

TotalTotal 2796427964 3044330443 3424834248 3848638486 4166041660

Iron Ore :Iron Ore :

ProductionProduction 8622686226 9907299072 122838122838 145942145942 154436154436

Consumption (e)Consumption (e)

- Captive mines- Captive mines 2348323483 2498824988 2634826348 2626126261 2889428894

- Non-captive mines- Non-captive mines 1423014230 1594815948 1862618626 2188921889 2362923629

TotalTotal 3771337713 4093640936 4497444974 4815048150 5252352523

ExportsExports 4164041640 4802048020 6257062570 7814578145 8927789277

SurplusSurplus 68736873 1011610116 1529415294 1964719647 1263612636

(000 tonnes)

Source: Joint Plant Committee, Kolkata – for steel production Indian Bureau of Mines, Nagpur – for iron ore production Exporters and MMTC – for iron ore exports e-estimated

IRON ORE CONSUMPTION BY STEEL MILLSIRON ORE CONSUMPTION BY STEEL MILLS

Even after meeting the full demand of the steel industry Even after meeting the full demand of the steel industry and also exports, there is a surplus and also exports, there is a surplus

This indicates that iron ore for domestic steel industry is not This indicates that iron ore for domestic steel industry is not a constrainta constraint

Most of the iron ore exported is in the form of fines and also Most of the iron ore exported is in the form of fines and also most entire low grade fines (-62% Fe) are exported that most entire low grade fines (-62% Fe) are exported that have no domestic demand.have no domestic demand.

IRON ORE EXPORTSIRON ORE EXPORTS

(Million tonnes)

• If FINES are not evacuated from mines, production of LUMPS will be adversely affected • During rains FINES get washed away into rivers/rivulets/agricultural fields creating environmental problems.• Most of the MOUs signed in Orissa, Jharkhand and Chhattisgarh are for steel making through DRI/sponge iron route which will only require CLO and not fines.

0

10

20

30

40

50

60

70

80

90

2003-04 2004-05 2005-06

Fines

Lumps

Total(rounded)

79% Fines

83% Fines

84% Fines

STOCKPILESTOCKPILE

Qty.: Million tonnes

Note: In addition iron ore is lying at Railway Station, in transit and ports. Source: Indian Bureau of Mines, Nagpur

0

5

10

15

20

25

30

35

Lumps Fines Total

31.3.200231.3.200331.3.200431.3.200531.3.2006

Conclusion: Production being led by demand from China, there is enough exportable surplus over and above domestic demand.

User specific requirement are a priority

Results in to multiple small mines that meet specific requirements, leading to: Sub optimal utilisation of

resources Higher costs as scale

economics are derived Cost considerations make

investment in beneficiation a low priority

Low initiative to exhaust available resources with higher expenditure

Enables Higher outlay for exploration leading to discovery of resources

Usage of technology and beneficiation to harness available resources

Long term investment horizon Investment in core

Infrastructure Results in Higher volumes Multiple product Full resource utilisation

Increased contribution to state/country finances

CAPTIVE MININGCOMMERCIAL MINING

COMMERCIAL MINING DRIVES COMMERCIAL MINING DRIVES HIGHER PRODUCTION & PRODUCTIVITYHIGHER PRODUCTION & PRODUCTIVITY

Enabling policy & environment for large scale

Commercial mining

Development in Infrastructure

Full harness of Resources

Efficient & Productive operations

Competitive environment leading to Higher & Cost effective output

Competitive exports and dominant position in International markets

Economy GrowsSteel sector Grows

PATH TO PROGRESSPATH TO PROGRESS

Domestic Demand fully met

CONCLUSIONCONCLUSION Total Iron Ore Production in India in 2005-06 - 155 Million tonTotal Iron Ore Production in India in 2005-06 - 155 Million ton

Total Export from India in 2005-06 – 89.3 Million tons and 93.27 Total Export from India in 2005-06 – 89.3 Million tons and 93.27

Million tons in 2006-07Million tons in 2006-07

• 84% of overall exports is Fines84% of overall exports is Fines

Fines generation is a natural phenomenon and by no means can be Fines generation is a natural phenomenon and by no means can be

stopped and only lumps production can be maintainedstopped and only lumps production can be maintained

About 72% of the iron ore production is finesAbout 72% of the iron ore production is fines

Steel production in India are primarily lump-basedSteel production in India are primarily lump-based

Limited Domestic usage of FinesLimited Domestic usage of Fines

• Limited capacity of sinter and pellets in IndiaLimited capacity of sinter and pellets in India

Fines were virtually “waste” till export requirement came in Fines were virtually “waste” till export requirement came in

20012001

Only surplus fines are exportedOnly surplus fines are exported

• Surplus of 13.7 million ton iron ore production in 2005-06 Surplus of 13.7 million ton iron ore production in 2005-06

after meeting domestic requirement of 52 million ton and after meeting domestic requirement of 52 million ton and

export of 89.3 million tonexport of 89.3 million ton

Exports enables mining industry to meet the steel industry’s Exports enables mining industry to meet the steel industry’s

demand for iron ore lumpdemand for iron ore lump

Commercial mining leads to mineral conservation ~ this is a Commercial mining leads to mineral conservation ~ this is a

established world over established world over

Captive operations leads to “ skim the milk” practices and Captive operations leads to “ skim the milk” practices and

sub-optimal use of minerals. Present addition between 2000-sub-optimal use of minerals. Present addition between 2000-

2005 only in non-captive stand-alone mines; exploration in 2005 only in non-captive stand-alone mines; exploration in

captive mines is least due to enormity of lease area.captive mines is least due to enormity of lease area.

EXPORTS ARE EXPORTS ARE SUSTAINABLE EVEN AFTER SUSTAINABLE EVEN AFTER MEETING DOMESTIC NEEDMEETING DOMESTIC NEED

ECONOMIC RATIONALE OF EXPORTSECONOMIC RATIONALE OF EXPORTS

New resources would be discovered only when there is incentive to New resources would be discovered only when there is incentive to

invest both time and money. The track record of Govt. being what it is, invest both time and money. The track record of Govt. being what it is,

private sector needs to participate actively in exploration.private sector needs to participate actively in exploration.

Captive mines – with the sole objective of providing cheap raw Captive mines – with the sole objective of providing cheap raw

materials to steel plants have little incentive to prospect aggressively.materials to steel plants have little incentive to prospect aggressively.

Stand alone mines which fully exploit minerals without selectivity have Stand alone mines which fully exploit minerals without selectivity have

driven the increased production seen in recent times. Share of stand-driven the increased production seen in recent times. Share of stand-

alone mines has increased from 73% to 77% in just 2 years i.e from alone mines has increased from 73% to 77% in just 2 years i.e from

2003-04 to 2005-06. 2003-04 to 2005-06.

ECONOMIC RATIONALE OF EXPORTSECONOMIC RATIONALE OF EXPORTS

Export market offers twin advantagesExport market offers twin advantages

• Taking advantage of prevailing international pricesTaking advantage of prevailing international prices

• Incentivising increased production through activating Incentivising increased production through activating

idle minesidle mines

• Increased production through machanisation and Increased production through machanisation and

exploration by plough back of surpluses.exploration by plough back of surpluses.

This in turn makes available more production to domestic This in turn makes available more production to domestic

marketmarket

THE INEVITABLE CONCLUSIONTHE INEVITABLE CONCLUSION

EXPORTS ARE IMPERATIVEEXPORTS ARE IMPERATIVE

THANK YOUTHANK YOU