The recent auctions in Karnataka that witnessed mines disruptions, elevated inventory levels, and high bid premiums is likely to have an effect on the bid premiums and are expected to get higher in the upcoming mine auctions. New auction rule that is being implemented as part of the amendments in the Mines and Minerals (Development and Regulation) Act may result in an escalation in price between 30-40 percent for nonintegrated steel makers.
The mining leases of 40 iron ore mines are going to get expired on March 31, 2020 which accounts for over 60 million tonnes of iron ore in India. All eyes are on the auctions of 18 mines from Odisha over the next few months.
A report by CRISIL Research said “We expect bidding for the Odisha mines to be aggressive. That’s because the first lot of 10 mines where the auction was later annulled had seen aggression, with 177 bids from a total of 58 companies. Iron ore prices are expected to rise depending on the bid premiums quoted in the auction. Our base case is the premium would be more than 40 percent for most mines, based on the high reserve price already set. That would potentially translate into a price hike of 30-40 percent after operations begin.”
CRISIL Research estimates that the landed price for a non-integrated steel maker on the eastern coast to be INR 3700-3800 per tonne including royalty, freight, and other charges. 15 of the 20 mines to be auctioned predominantly have iron ore while three have both iron ore and manganese, and the remaining are primarily manganese reserves. The 18 mines containing iron ore reserves together hold 1600 million tonnes of which five mines accounting for 33 percent are reserved for specified end-use whose lease is going to expire on March 31, 2020.
India is estimated to have produced 207 million tonnes of iron ore in 2019, of which, more than two-thirds were by merchant miners and the rest by captive steel makers. Odisha alone is estimated to have produced 114 million tonnes, which accounts for more than half of India’s iron ore production.
