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Royalty on minerals to push up prices

With the Committee of Secretaries clearing a proposal to change royalty rates for minerals from the present specific rate to ad valorem rates, prices of major minerals including iron ore are expected to move up.

The critics feel that the move comes at a time when the wholesale price index (WPI) of minerals group has moved up sharply 42% and is set to further increase price of iron ore where royalty would increase 10-fold.

The proposal was sent to the Committee of Secretaries to consider implications of the change in royalty charges on the price line. The CoS observed that higher royalty on major minerals would only have a marginal impact on inflation by around 0.5%. On the other hand this would boost the royalty earnings of the states in a big way.

The steel lobby apparently is dismayed. This will increase their cost of production. The miners who export iron ore will also find a higher outgo from their rising income. “The iron ore prices are already at a high level, accounting for almost 25% of the cost of steel. With NMDC considering further hike in prices with effect from April and higher royalty rates, our input costs would only go up. We will be left with no option but to raise steel prices again,” a senior official at a private sector steel company told a leading business paper.

As per the proposal cleared by the CoS, the royalty rate on iron ore would be 10% (of the sales price) on all grades (lump, fines and concentrates). With iron ore prices hovering at Rs 3,000-3,500 per tonne and expected to rise further, the new system would substantially increase royalty payout. The present royalty rate on iron ore varies from Rs 13 per tonne to Rs 27 per tonne, depending on quality.

While the new royalty rates would impact steel-making and iron ore mining companies alike, it would enrich the states’ royalty earnings (on all non-coal minerals) by almost 100% from a level of Rs 2,014 crore (at 2006-07 production levels) to Rs 3,943 crore. The royalty collection from iron ore itself is likely to increase from Rs 247 crore to Rs 1,650 crore.

Along with iron ore, the new system would change the royalty regime for limestone, zinc, bauxite, manganese, diamond and uranium. If the Cabinet approves the proposal now the cash-strapped mineral rich states will certainly feel delighted.
ArcelorMittal woos NMDC for mining JV

ArcelorMittal saw an opportunity in the global tender of NMDC for setting up JVs. It lost no time to place its bid for joint venture participation in mining activities. With resource prices soaring any alliance assuring mineral rights is welcome for the world’s largest steel manufacturer.

Reportedly around 35 companies had evinced interest in the 50:50 joint venture to develop facilities in the state-run company’s existing or new mineral properties overseas.
Out of these potential suitors, six are foreign bidders. Also, 12 companies that have expressed interest happen to be from the steel sector while 19 are from the mining sector, with the other sectors making up for the rest.

For ArcelorMittal this is not the only attempt to woo an Indian public sector suitor. Earlier it had has evinced interest in Coal India. The steel maker is also understood to be interested in a joint venture with Coal India for its abandoned mines and unexplored reserves. It is difficult now to conclude that it will be a win-win situation for NMDC and ArcelorMittal both – that it will be for ArcelorMittal however is not in doubt.

NMDC produces around 30 million tonnes of iron ore annually from its Bailadila deposit in Chhattisgarh and Donimalai in Karnataka and has balance reserves that add up to more than 700 million tonnes. It supplies to most domestic steel companies that do not have captive mines such as Essar Steel, Ispat Industries and Rashtriya Ispat Nigam.

Iron ore contracts for the new year were being settled at more than 65 per cent higher prices than last year. Iron ore accounts for around 35 per cent of the cost of steel production

The global steel giant ArcelorMittal has a iron ore self-sufficiency of 46 per cent at present.The company has set a target of 65 per cent ore self-sufficieny by 2012. ArcelorMittal has announced steel plants of 12 million tonne capacity each in Orissa and Jharkhand.

According to the steel maker’s latest investor presentation, the company is expecting iron ore allocation for both the projects in 2008. Iron ore requirements for each of the projects would be 600 million tonnes over a 30 year period.

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