Dilip Kumar Jha / Mumbai August 18, 2011, 0:35 IST The closure of mines in Karnataka?s Bellary-Hospet region has started hitting the downstream sector. Around 5,000 foundry units and a similar number in the sponge and pig iron sector have been facing a big shortage of iron ore supply. The foundry sector makes key equipment for the auto and engineering industries.
Following a Supreme Court order about two months earlier, private mining of iron ore in Karnataka has been suspended. The central and state governments also went hard on mining clearances in other states. Consequently, ore supply has declined by at least 50 per cent.
Downstream sectors such as foundries are, therefore, facing a big shortage of supply of quality pig iron, the key raw material for all major auto and engineering grade foundries. The frequent rise in interest rates by banks is another problem for the foundry sector. ?Steel and other metallurgical industries are severely affected,? said A K Anand, director of The Institute of Indian Foundrymen (IIF).
Bellary-Hospet is known for high-grade iron ore, not available in abundance elsewhere in the country. Karnataka produces nearly 30 per cent of India?s yearly output of 220 million tonnes of iron ore.
?Foundry units are facing problems from both sides ? lower realisation and high cost of production due to a dramatic spurt in interest rates for their working capital,? said C Nagarajan, a National Council member of IIF. Interest rates have risen by four per cent in the past six months and raw material prices by 15-20 per cent.
According an estimate, about 500 small and independent sponge iron units, largely in Chhattisgarh, Gujarat, Tamil Nadu and West Bengal, are facing a closure threat due to non-availability of ore.
The shortage of ore has already started begun impacting steel and other downstream producers. Sponge iron prices first shot up to Rs 24 a kg when the mining ban in Bellary-Hospet was announced. It then cooled, to the current Rs 22 a kg.
?The sponge iron industry is currently breaking even. Any rise in raw material prices from here will turn the returns negative,? said Amitabh Mudgal, vice-president of Monnet Ispat, one of the largest producers.
An estimated 32 million tonnes of good quality ore is annually required to meet the need of industry, of which 3.5-4 mt is for feeding the foundry industry for production of pig iron. Currently, iron ore mining in Bellary-Hospet is restricted to the public sector NMDC, whose capacity is inadequate to meet the foundry industry need, says Anand.
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