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MOSL: METALS-Tailwinds for steel and aluminum-SC order unlikely to affect near-term domestic iron ore supply

​METALS: Tailwinds for steel and aluminum; SC order unlikely to affect near-term domestic iron ore supply

Indian steel prices inching up, driving margin expansion

Indian steel mills have increased prices of flat products by INR1,500/t from August 1, 2017, after a price hike of ~INR700/t in July. The actual transmission of price hike announcements is often driven by underlying market conditions, which are strong. Strong demand growth in China is driving the international steel market.

Supreme Court judgment on rapacious iron ore mining in Odisha

The Supreme Court (SC) of India has passed a judgment on August 2, 2017 regarding cases of rapacious mining in Odisha. In this judgment, it has imposed 100% of the value of mined mineral as penalty towards excess production as determined by the Central Empowered Committee (CEC). According to the CEC, excess mining without/beyond environment clearance (EC) is 213mt (total value: INR171b) for iron ore and 2.4mt (total value: INR5b) for manganese (Mn) ore. According to Department of Mines and Geology (DMG), Odisha, this has not been disputed by any lease holder except Sarda Mines and JSPL. The CEC has also suggested that JSPL is the 'benami' holder of Sarda Mines. The cases of Sarda mines and JSPL will be decided at a later date. Tata Steel (TATA) and Sarda Mines may have to pay INR6.1b and INR19.4b, respectively (exhibit 1).

Iron ore supply unlikely to tighten in near term

Iron ore supply is unlikely to tighten because miners cannot absolve themselves of this liability by surrendering their leases, in our view. Some of the mines are already closed, while the state had increased EC for many legal mines. It may so happen that the mines upfront full-year production by December 31 to pay penalty.