The Hindu Business Line : India should not export iron ore: Muthuraman

INDIA'S urge to export iron ore should be tempered by the economic benefits of converting it into steel at home and the domestic need for the resource caused by the country's own graduation to being a big steel consumer, Mr B. Muthuraman, Managing Director, Tata Steel, told newspersons hereon Friday.

India is among countries with large deposits of iron ore, Brazil topping the list. Comparing the two, he said, Brazil's iron ore export policy was in the context of that country having a modest population and low steel consumption of 13-14 million tonnes, likely touching 20 mt at its peak.

In contrast, India was home to 1.2 billion people, the world's second biggest population. Its potential steel demand over time was pegged at 300 million tonnes.

The issue then would not be the original size of India's iron ore reserves, but how long they would last against peak steel consumption rates.

At 300 mt of annual steel demand, Indian reserves would last only 40 years. Last year, the country produced 123 mt of iron ore, of which 63 mt was exported.

"I am of the view that India should not export iron ore," Mr Muthuraman said, maintaining alongside that he had no objection to additional steel making capacities in the country provided they promised to value add iron ore into steel here itself.

"People should set up capacities. The issue is not about setting up plants, it is about exporting iron ore," he said.

Asked if an investment policy that insisted on resident value addition would be compatible with today's global trade rules, he said that iron ore was a non-renewable resource and ought to be treated as such.

However, Mr Muthuraman said, he favoured a revised mining policy, one that would ensure adequate iron ore supply to steel manufacturers and allow bigger mines. Brazilian mines were in the region of 30-50 mt and the largest in the world produced 80 mt. This, in turn, influences iron ore prices.

On the subject of new steel making capacities likely impacting global steel prices, Mr Muthuraman said he would be worried only if a fairly large component of announced expansion plans fructified.

Additional capacities announced so far add up to 500 mt, which compared with world steel production at just over a billion tonnes last year.

"Probably half of the announced capacities will actually come," he said.

To consider further would be potential growth in Chinese demand for steel, which is currently around 300 mt. If the US with a population of 250 million people consumes 100 mt of steel, then China's 1.5-billion population should take its future demand to 600 mt or so, Mr Muthuraman argued.

China itself was slated to add 200 mt of additional capacity, but that should be balanced with an estimated 100 mt that would be taken off as part of restructuring its steel industry. This points to continued demand in China.

What should worry industry are capacities proposed in the developed economies, he said. In any case, matching global demand for steel with manufacturing capacities is difficult because capacities arrive as clumps while demand grows gradually.

"Our experience is that when capacity utilisation is 90 per cent and demand is strong, then price is determined by the strongest player. But if demand is weak and capacity utilisation falls to below 85 per cent, then the weakest player sets the price," Mr Muthuraman said.

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