Steel companies with pellet plants to get priority in iron-ore mine allocation

The government will give priority in iron ore mine allocation to steel companies that build pellet plants, as an incentive to prompt more companies to invest in ore improving facilities. This would reduce the need to export certain categories of ore and would also force many resource exporting companies in Karnataka and Goa to sell their produce in the domestic market, said a senior official in the mines ministry . 

The government's plan is to encourage steel plants that are building pellet plants - units that remove moisture from ores, clean the mineral baking it into tight little balls to be used as more efficient feed in steelmaking. Many steelmakers and miners are already setting up plants with capacities ranging from 2 million tonnes to 12 million tonnes, said the same official who asked not to be named as the proposal was still being debated. 

Typically, iron ore comes in two categories; fines and lumps. While lumps are more easy to use in steelmaking, fines have been traditionally neglected by steel plants. 

"A pelletisation push will create a domestic market for iron ore fines that have either been stockpiled for decades or been exported by the million of tonnes," said the official. State-owned Steel Authority of India , or SAIL, is learnt to have accumulated 35 million tonnes of fines at its Gua mine in Jharkhand. SAIL will build a 4 million tonnes pellet plant each at the mineheads in Gua, and Bolangir in Orissa, and also has plans for a 2 million tonnes plant in Bhilai. 

According to Jindal Steel and Power executive director Rajesh Jha, the company's Angul project is designed to take only 35% lumps and will need pellets. Jindal Steel already has a 4.5 million tonnes pellet plant running in Barbil, Orissa, which in its second phase will expand to 10 million tonnes. 

Depending on the nature of the iron ore block it is allocated, Jha says Jindal Steel would set up a 6 million tonnes pellet plant in Angul too. 

A large number of Indian firms are also building pellet plants. Trading major Stemcor's Indian subsidiary, Brahmani River, expects its 4 million tonnes pellet plant in Orissa to become operational in a few months. Essar is setting up a 12 million tonnes plant near Paradeep, again in Orissa. 

Essar already has an 8 million tonnes plant at Vishakpatnam. "Considering the large investment required in core sector industries like steel, it is important to have assured source of supply of raw materials," said Jatinder Mehra, director at the Essar Group . 

The share of fines against lumps is steep in Goa and Karnataka, at 80:20. If exports are restricted in the future, as was done in Karnataka to tackle illegal mining, miners with pelletisation plants won't suffer, say industry executives. 

India's annual iron ore requirements will increase to 340 million tonnes by 2010. Reserves are estimated to last another 20-30 years.

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