Karnataka is facing a glut of iron ore due to the restrictions imposed on its export from the state for the last 8 years. The restrictions have left Karnataka's iron ore miners dependent on steel companies in the state and have resulted in a surplus of nearly 5.19 million MT of iron ore fines.

Supply in the state is higher compared to demand amidst production restrictions and the ban on exporting ore out of the state imposed by the Supreme Court. In 2019, total iron ore exports from other parts of the country were 10.34 MMT of fines and 1.116 MMT of lumps.

Eight years ago, the Supreme Court, while hearing a case related to illegal mining and illegal export of iron ore from the state, imposed a ban on export of iron ore from the state and imposed restrictions on production. All these steps were aimed at protecting the environment and state revenue.

Sources said,"The restrictions on trade of iron ore in Karnataka are suppressing the growth of the sector and having significant deleterious effects on the industry, and the public exchequer. While the rest of India is exporting iron ore in line with the EXIM policy of the government, an application by its members - Vedanta Ltd and Mineral Enterprises Ltd - for permission to export ore, which the steel and associated industries in the state are not willing to purchase in the e-auction, are pending before the Supreme Court."

As a result of the inventory pile up, the Karnataka state exchequer, in the last 10 years, has lost around Rs 29,058.8 crore. Apart from the loss to the exchequer, the export ban and rising inventories are also putting pressure on the miners.

In Karnataka, 70 per cent of the sourcing is done by a single major steel player, JSW. With only a few active purchasers of fines in auctions, there is no competitive bidding and large quantities of material are sold at base price.

While Odisha miners sold 57 grade of iron ore at an average price of around Rs 1550 per tonne (WMT) ex-mines during February/March, this year, the prices of the sdame grade in Karnataka were at Rs 1490 per WMT (2 per cent lower) during the period. Domestic NMDC benchmark prices were drastically revised downwards during May/June by Rs 900 per tonne.

In December 2017, SC had enhanced iron ore production cap in Karnataka to 35 million tonnes. However, in 2020-21 production is estimated at around 36.66 million tonnes as against demand of 32.62 million tonnes. "Hence, there is clearly no shortage of supply necessitating continuation of restrictions," said an official of the mining company.

He also noted that under the new auction regime introduced in 2015, several end-users had secured mining rights and a substantial commercial production of ore from such leases, leading to a fall in so their dependency on iron ore in e-auctions.

Going forward, surplus situation is only expected to worsen. "Hence, an alternative market is urgently required as iron ore may remain unsold even if the entire domestic demand is met from leases in Karnataka and without recourse to material from outside the state," said the Federation of Indian Mineral Industries (FIMI).