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The iron ore irony - Views on News from Equitymaster
 
 
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  • Jun 19, 2008

    The iron ore irony

    Iron ore is the key raw material ingredient required in manufacturing of steel. It is an important element, which has significant impact on the price dynamics of steel. India is fourth largest producer of iron ore in the world. More than 50% of iron ore produced in the country is exported.China is amongst the biggest importer of iron ore from India. It is estimated that India has 25 bn tonnes of ore reserves out of which only 13 bn tonnes is recoverable iron ore. The country's iron ore production in 2006-07 was around 181 m tonnes out of which domestic steel industry consumed around 88 m tonnes.

    It is estimated that to produce 1 tonne of steel, 1.7 tonnes of iron ore is required. If we go by this mathematics, currently the country has surplus iron ore production, as the present steel production capacity is 53 m tonne. But seeing the major capacity expansion-taking place in the domestic steel industry, the consumption of iron ore will grow at a faster pace. According to ministry of steel report, the steel production is expected to touch 125 m tonnes by 2011 and 200 m tonnes by 2020, which means that the domestic steel industry will require around 211 m tonnes of iron ore annually from 2011 onwards and 340 m tonnes from 2020 onwards. If we go by the available reserves of recoverable iron ore in the country, which are 13 bn tonnes, then it may last only up till year 2050 considering that it is used only for domestic consumption.

    The fact that the domestic recoverable iron ore reserves will last only till 2050 has not lost upon domestic steel producers and they have become increasingly vocal in recent years over the indiscriminate exports of iron ore from the country's shores. Iron ore exporters on the other hand have contended that majority of exports take place in the fine category of iron ore, which anyways is not used by most of the Indian steel producers. We are not taking sides here but we are of the opinion that in an increasingly resource scarce world, it makes sense for countries like India to make optimum use of its natural resources and do value add within its own shores rather than allowing it to be exported. Furthermore, as compared to other major exporting nations like Australia and Brazil, per capita consumption of steel in India is still on the lower size and hence, we still have a long way to go before we can think of starting to export iron ore without having a huge impact on our own needs.

     

     

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