A price slump in the global market for iron ore has thwarted a quick fix that could have given India’s economy a boost.
Until three years ago, India was the world’s third-largest exporter of iron ore. Mines in the picturesque western state of Goa supplied nearly half of those exports, employing more than 100,000 people, and generating more revenue for the local economy than even the tourists who flock to its famous sandy beaches.
But the previous Indian government halted iron ore mining because of concerns about illegal operations and the environment. Prime Minister Narendra Modi’s government set about restarting mining, but by the time it cleared the final obstacle last month, prices had collapsed.
The price of iron ore similar to that mined in Goa has slumped to about $US42 a tonne at China’s Tianjin Port, from a high of $US165 a tonne in 2011, according to the Steel Index website.
Barge operators, truck owners and others dependent on iron ore mining in Goa are idle as a price slump means mines may not be able to reopen.
“The (industry’s) economics don’t exist anymore,” said Ambar Timblo, managing director of Fomento Resources, one of Goa’s leading mining companies. He estimates Goa’s mining industry has lost nearly $US20 billion ($26bn) in potential revenue since the state’s mines were suspended from operating.
That has left people such as Raju Juggal and his partner Sunil Mesta struggling to pay debts they took on five years ago to buy a boat to transport iron ore. “I want to sell my vessel as scrap because there are no takers,” said Mr Juggal. “But the banks won’t let us, as they say the scrap value is too low to cover our loans.”
Two things happened while India’s iron ore industry was shut down. China’s demand slowed and Australian giants Rio Tinto and BHP Billiton, along with Brazil’s Vale, boosted supply in a price war that may have permanently crippled India’s iron ore industry.
The three companies, which together produce about 60 per cent of the world’s iron ore exports, are betting they will remain profitable because their size and technological advantages enable them to keep mining costs low.
Rio, for example, ships a tonne of iron ore to China at just above $US30 a tonne, including various government royalties, according to analysts. Moreover, because Rio’s ore is higher quality than that mined in Goa, it sells for around $US49 a tonne.
By contrast, it costs Goan miners on average of $US40-$US42 a tonne to produce their lower-quality ore and to get it to a local port, including various government levies. When they ship the ore, they must then pay a 30 per cent export tax, first imposed on Indian miners four years ago when the boom was at its height.
Add in shipping costs, and Goan mine operators need to sell iron ore at about $US55 a tonne to break even — some 30 per cent higher than current prices.
Few associated with the industry in Goa are optimistic.
“Nearly all the households in our village are on the verge of collapse as most are dependent on mining,” said Devanand Vasant Parab, head of the council in Pisseurlem, one of the villages that used to provide mining workers.
“We know that market rates have crashed to such a level that mines won’t restart.”
Around three-quarters of those employed directly or indirectly in Goan iron ore mining at its height were now unemployed, said Glenn Kalvampara, secretary of the Goa Mineral Ore Exporters Association.
“The rest were retained in the hope that mining would start sooner than later, despite there being no mining income,” he said. “Now there seems to be no end.”
Iron ore mining in Goa, a former Portuguese colony, took off following World War II, when Japanese buyers were scouting for reliable suppliers to aid the country’s reconstruction efforts.
The industry was turbocharged after 2000, as China entered a period of frenzied construction activity. At the peak between 2005 and 2010, exports of the raw material accounted for 3-4 per cent of India’s total exports, said Sujan Hajra, Mumbai-based chief economist with Anand Rathi Securities.
Goan villagers found jobs either at mines or as truck and barge operators, with the industry accounting for about a quarter of local GDP. “Like the California Gold Rush, we experienced the Goan iron ore rush,” said Harish Malwani, a local miner.
Anup K. Pujari, India’s mines secretary — the most senior bureaucrat in the mining ministry — said the government “would like to produce more iron ore and bring in policies that would make it easier”.
Such words are providing little solace. “It is next to impossible to start again,” said S Fernandes, who used to employ a team of 50 people operating earth tippers, excavators and ore crushers at mines in Goa. “I plan to migrate to either Canada or Australia, whichever works first.”
Source: The australian
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