By Krishna N Das and Manolo Serapio Jr
Codli Village, INDIA/SINGAPORE (Reuters) - Top Indian trader MMTC's (MMTC.NS) $80 million iron ore export terminal, ready since 2010, has never handled a cargo. Now the company wants to spend $16 million to convert the terminal to ship coal.
Bans on iron ore mining and exports in India's top producing states of Karnataka and Goa have choked the industry so hard that MMTC is one of many firms exiting. Even if efforts to fully lift the bans make it past the many bureaucratic and legal hurdles, iron ore miners do not expect complete resumption of production until late 2014.
The bans, put in place as the government tried to clamp down on illegal mining, have cut India's iron ore exports by around 85 percent, or 100 million tonnes, over the past two years. They have also reduced foreign exchange earnings by more than $17 billion in the same period, according to the Federation of Indian Mineral Industries (FIMI).
The structural shift in India's iron ore industry could be a blessing for other suppliers, as demand growth from top market China slows and Australian miners Rio Tinto (RIO.AX) and BHP Billiton (BHP.AX) ramp up output. It will also make it harder for India to regain its spot as the world's No.3 exporter of the steelmaking raw material.
"It's pretty evident that there's lasting damage to the industry," said R. K. Bansal, a secretary general at FIMI. "But if the government of the day at the state and central level, as well as other authorities, stick their neck out and take decisions then this paralysis can go."
Mining in Goa was banned in September 2012, freezing shipments that reached about 50 million tonnes in the 2010-11 fiscal year. In neighboring Karnataka, where the ban started in 2011, exports remain frozen even though it was lifted in April. In both states, the bulk of mining was done by private companies, which were accused of mining outside lease areas and in excess of set limits.
MMTC was banking on business from Karnataka when it invested along with Indian partners Sical Logistics Ltd (SICAL.NS) and L&T Infrastructure Development Projects in an iron ore terminal in Ennore Port in the southern Tamil Nadu state.
"We think that at least in the next five to six years there will be no exports of iron ore," said SM Babu, general manager at MMTC's Chennai office. Instead the joint venture company hopes to tap growing demand for coal-fired power plants in Tamil Nadu.
Only 16 out of 115 mines have resumed mining in Karnataka. For those keen on returning, the bureaucratic hurdles can be overwhelming.
"There are about 30 or 40 companies whose quantities are so low that they will never restart," said Basant Poddar, owner of Mineral Enterprises Ltd, which has four mining leases in Karnataka but none operating currently.
"For those willing, the issue is with forest clearances. The whole process goes through about 50 levels or officers for stage one clearance, and for stage two it's cut down to about 20."
On Monday, Vedanta Resources Plc (VED.L), a London-based mining conglomerate controlled by Indian tycoon Anil Agarwal, said its Sesa Sterlite (SESAGOA.NS) unit had resumed operations in Karnataka after clearance from a court-appointed panel.
CHINA APPETITE WANING
Jiro Iokibe, analyst at Daiwa Securities in Tokyo, sees Indian iron ore exports of 15 million tonnes next year, rising to 20 million tonnes in 2015. This is well below the record of more than 117 million tonnes in 2009-2010.
Lower Indian supply has eased pressure on a market seen moving to surplus given expansion by low-cost producers such as Rio Tinto, BHP Billiton and Brazil's Vale (VALE5.SA) while growth in Chinese demand eases.
India's exports to China reached just over 10 million tonnes in January-November, down 68 percent from a year earlier.
"Definitely people are not depending now on Indian material," said a trader in Shanghai who is among a few left selling only Indian iron ore to Chinese mills. "Most traders have switched to mainstream cargoes from Australia and Brazil and cargoes from India are going at a discount of maybe up to $4 a tonne."
India's central and state governments, which put in place the various bans under direction from a Supreme Court determined to clamp down on illegal mining, appear keen on getting the iron ore sector back on its feet.
"We have placed all the regulatory measures we have undertaken in front of the Supreme Court so that we can resume mining operations," Prasanna Acharya, mines director in Goa, said in November.
The court has set up a panel that will determine a limit on Goa's production. The panel is expected to submit an interim report by February 15, but Acharya has said he does not expect a resumption in mining before October at the earliest.
When the iron ore miners give up, so do businesses relying on the raw material.
Out of the 53 sponge iron making plants in Karnataka with annual production capacity of about 3 million tonnes, 19 have closed and 27 are operating at half their capacity due to a shortage of iron ore, said Deependra Kashiva, executive director of the Sponge Iron Manufacturers Association.
India is the world's top producer of sponge iron, an alternative steelmaking ingredient that is economically viable where natural gas is abundant and cheap.
At Sesa Sterlite's 7 million-tonnes-per-year mine in Codli Village, about 50 kilometers east of Goa's capital Panaji, machinery operator Lakshdeep Asrekar is among a few who still report to work.
Asrekar is lucky because many have lost their jobs, with industry group FIMI estimating job cuts at 200,000 across Goa and Karnataka.
"We come and start our machinery and dumpers and keep them running for 15-20 minutes so that they are in working condition," said Asrekar.
(Reporting by Manolo Serapio Jr. in SINGAPORE and Krishna Das in GOA state; Editing by Michael Urquhart)
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