One-fourth of the country’s steel production to be impacted.

The Supreme Court ban on iron ore mining in the Bellary district of Karnataka has hit more than half a dozen steel companies, including JSW Steel and Kalyani Steels manufacturing about 14 million tonne (mt) steel that produces 21 per cent of the country's iron ore.

Steel companies in the Bellary-Hospet region account for about 25 per cent of India’s domestic steel production of 63 mt and have been forced to explore the option of sourcing from other states.

Karnataka alone contributes more than a fifth of the total 218 mt of iron ore produced annually. About 80 per cent of the southern state’s production of the mineral stands at 45 mt comes from the Bellary-Hospet region. Of this, 25 mt is consumed within the state by at least four major integrated-steel manufacturing plants, including the Vijaynagar plant of JSW and Ginigera plant of Kalyani in Bellary.

 

These four plants produce 14 mt of steel every year using 25 mt iron ore consumed locally in Karnataka. JSW, part of the $10-billion O P Jindal Group, has a 10 mtpa plant at Tonagallu in Bellary accounting for a major chunk of the state's steel production.

 

JSW Steel sources, at least, 50 per cent of its ore requirement of 15 mt for the Vijaynagar plant from mines in Bellary. Of the rest, 30 per cent is sourced from Chitradurga district and 20 per cent from outside Karnataka.

 

With the ban, JSW Steel has been left with an inventory of three days to run the plant, said an executive in one of the companies who did not want to be quoted. “This is the mother plant for JSW. Sourcing the mineral from other states would push up the cost marginally. Besides, this cannot be a replacement for Bellary,” he said.

 

The Sajjan Jindal-led company has been looking at other states, including Goa, Orissa, West Bengal and Chhattisgarh, as alternate sources for importing the mineral.

 

The Vijaynagar plant alone accounts for more than 70 per cent of JSW Steel’s overall steel production capacity of 14.3 mtpa currently. The company also owns a 1 mt capacity plant at Salem in Andhra Pradesh. The acquisition of Ispat Industries in December added another 3.4 mt steel production capacity. The company has plans to invest Rs 2,695 crore to ramp up Bellary plant’s capacity by an additional 2 mt by the end of this financial year.

 

For other producers operating in the region, the impact of the latest mining ban is likely to be more pronounced in the absence of iron ore stocks. “We have no inventories left to operate as they have been used up in the past months since the surveys by Supreme Court committee started,” said R K Goel, managing director, Kalyani Steels, an arm of the $2.1 billion Kalyani Group.

 

Others who will be affected are Sathavahana Ispat, Kirloskar Ferrous, Unimetal Ispat, Sandur Manganese and Iron Ore and Sandur Laminates. Goel also added the ban would hit the industry badly as meeting commitments already made to domestic and global customers will become difficult. His company supplies steel to corporates including Tata Motors, Mahindra & Mahindra and Maruti Suzuki India Ltd.

 

Kalyani Steels uses 650,000 tonne iron ore to produce 1.1 mt steel annually. It had been sourcing the mineral from Mysore Minerals Ltd before the crisis began. “We have been trying to source iron ore from other states such as Orissa, but this is not a viable model due to additional transportation cost,” Goel said.

 

A senior mines ministry official said the ongoing Karnataka iron ore crisis would not impact domestic prices of ore, which are linked to international benchmarks.