Mixed Performance

Demand and supply scenario of key minerals

Key minerals such as coal, lignite, bauxite, iron ore, and select metallic and non-metallic minerals are directly or indirectly used in various infrastructure sectors. Among major minerals, coal and lignite showed an increase in production during 2014-15; however, production of bauxite and iron ore declined during the year.

A snapshot of the production trends in various minerals over the past few years…

Coal

The production of raw coal (coking and non-coking) increased at a compound annual growth rate (CAGR) of 3.55 per cent between 2010-11 and 2014-15. In 2014-15, the total production of raw coal increased by 8.25 per cent  to 612.43 mt from 565.77 million tonnes (mt) in 2013-14. The production of coking coal increased by 1.1 per cent in 2014-15 (57.45 mt) as compared to 2013-14 (56.82 mt). However, the production of non-coking coal increased by about 9 per cent and stood at 554.98 mt in 2014-15 as compared to 508.95 mt in 2013-14.

Production from captive coal blocks increased at a CAGR of 11.1 per cent from 2010-11 to 2014-15. Production, which had stagnated during 2011-12 and 2012-13, picked up during 2014-15. It grew by 33.66 per cent to 52.77 mt from 39.48 mt in 2013-14.

The gap between coal demand and supply between 2010-11 and 2014-15 increased at a CAGR of 7.8 per cent. This gap has been narrowing since 2013-14 due to an increase in coal supply.

Public sector companies accounted for about 93 per cent (567.03 mt) of the total coal production during 2014-15. Of these companies, Coal India Limited (CIL) alone accounted for 80.7 per cent of the production. In contrast, the production by Singareni Collieries Company Limited (SCCL) was only 8.58 per cent. The share of private sector companies in total coal production was 7 per cent (45.4 mt).

Coal reserves are found in the Gondwana region and in tertiary coalfields. As of April 1, 2015, 99.51 per cent (305.104 billion tonnes [bt]) of coal reserves were in the Gondwana coalfields, while tertiary coalfields accounted for only around 0.5 per cent (1.492 bt). Despite abundant coal reserves, India relies heavily on imports to meet its demand as well as supplement low quality domestic coal with high quality imported coal, which has low ash content and high gross calorific value. Coal imports increased at a CAGR of 32 per cent between 2010-11 and 2014-15. Non-coking coal accounts for almost 80 per cent of total coal imports, with Indonesia being the key source. Moreover, due to limited coking coal production, steel manufacturers rely heavily on imports, primarily from Australia.

Domestic coal prices of CIL increased at a CAGR of over 9 per cent between 2009 and 2013. Going forward, it is expected that this trend will continue. The Ministry of Coal (MoC) has set a target of 1 bt of coal production by 2019-20. To achieve this target, it has outlined a roadmap which details a host of measures including technological advancements in mining, enhancement of the coal evacuation network, and identification of new mines.

cover (Page 1)Lignite

Estimates of total lignite reserves were increased from 40,906 mt in 2010-11 to 44,114 mt in 2014-15. Tamil Nadu, Gujarat and Rajasthan together account for about 99 per cent of the total lignite reserves and the entire proven lignite reserves in the country. During 2014-15, the total lignite production stood at 48.26 mt as compared to 37.73 mt in 2010-11. For 2015-16 (as of November 2015), the production of lignite was 26.1 mt. In the past, problems pertaining to land acquisition and delays in obtaining regulatory clearances have been major impediments to lignite production.

The Neyveli Lignite Corporation (NLC) and Gujarat Mineral Development Corporation (GMDC) are the major producers of lignite. NLC uses lignite mainly for captive consumption. Hence, a transfer price is set in accordance with the guidelines issued by the MoC and the Central Electricity Regulatory Commission. GMDC charges differential prices, depending on the consumer industry. Small producers include Gujarat Industries Power Company Limited, Rajasthan State Mines and Minerals Limited, and VS Lignite Power Private Limited. The power sector is the major consumer of lignite in the country, followed by textiles and rayons. During 2014-15, lignite despatches to the power sector stood at 39.47 mt.

cover (Page 1)Bauxite

Bauxite production increased at a CAGR of 15 per cent for the period 2010-11 to 2014-15. However, compared to 2013-14, production decreased by 4 per cent in 2014-15. For the period April-November 2015, bauxite production was 19.25 mt. In terms of state-wise bauxite production, Odisha had the highest share of around 42 per cent, followed by Gujarat (25 per cent), Maharashtra (12 per cent), Jharkhand (9 per cent), Chhattisgarh (7 per cent), Madhya Pradesh (4 per cent) and Goa (1 per cent). Tamil Nadu and Karnataka had an almost negligible share in total production.

The key players that dominate the bauxite market are National Aluminium Company Limited (NALCO), Hindalco Industries Limited, Bharat Aluminium Company Limited (BALCO) and GMDC. These companies have captive bauxite mines, the output from which is used in their smelters to produce aluminium. An industry-wise analysis of bauxite consumption shows that the aluminium industry is the principal consumer (94 per cent in 2013-14), followed by the cement industry (4 per cent).

Since 2012-13, the wholesale price index  (WPI) of bauxite indicates a stagnant price. The index increased from around 140.4 in 2010-11 to 169.6 in 2012-13 as well as 2014-15.

Iron ore

Globally, India ranks fourth in terms of iron ore production, following China, Australia and Brazil. In 2014-15, India produced 128.91 mt of iron ore, a decline of 15 per cent compared to 152.18 mt in the previous year. During 2015-16 (till November 2015), India produced 94.4 mt of iron ore. In terms of value, there has been a declining trend since 2010-11. In 2014-15, the value of iron ore production was reported at Rs 285.34 billion, a decline of 10.91 per cent over the Rs 320.31 billion registered in the previous fiscal year. This was the fourth consecutive year in which there was a fall in the value of iron ore produced.

There were 290 reporting mines in 2014-15 as against 322 the previous year. A state-wise analysis shows that during 2014-15, Odisha led in iron ore production, accounting for 40 per cent of the total, followed by Chhattisgarh (23 per cent), Karnataka (16 per cent) and Jharkhand (15 per cent), while the remaining (6 per cent) production was from Andhra Pradesh, Madhya Pradesh, Maharashtra, Rajasthan and Telangana. However, no production was reported from Goa due to discontinuation of mining operations.

Both public and private sector players are engaged in iron ore production. The public sector contributed about 46 per cent to total production during 2014-15, of which 53 per cent was by the National Mineral Development Corporation (NMDC), 39 per cent by the Steel Authority of India Limited (SAIL) and 4 per cent by Odisha Mining Corporation Limited. The share of the private sector in total production was 54 per cent, of which Tata Steel Limited (TSL) accounted for 21 per cent in 2014-15. The five leading producers – NMDC, SAIL, TSL, Rungta Mines Private Limited, and Serajuddin and Company – with 24 mines accounted for 65 per cent of the total production of iron ore in the country.

According to export-import data compiled by the Department of Commerce, during 2014-15, iron ore exports were over 7.3 mt, a significant decline of about 55 per cent compared to 16.29 mt in 2013-14. Iron ore imports were over 12.09 mt in 2014-15, the highest since 2007-08. During the current fiscal year (April-September), only about 0.99 mt of iron ore was exported, while 5.06 mt was imported. In terms of the domestic price trend, the WPI of iron ore has been declining, from 534.4 in January 2015 to 340.1 in November 2015. This fall in price realisations is primarily due to weak demand.

A key recent development pertains to the commencement of auctions for mines by state governments. Steps such as the passage of the Mines and Minerals (Development and Regulation) Amendment Act, 2015 (MMDR Act) have been welcomed by the industry. With this enactment, mining leases, which had expired after their first renewal, stand automatically extended till March 31, 2020 (for merchant miners) and till March 31, 2030 (for captive miners).

Other metallic minerals

Copper ore and concentrates: During 2014-15, copper ore production stood at 3.59 mt as compared to 3.77 mt during 2013-14, a decline of about 4.88 per cent. Between 2010-11 and 2014-15, the rate of growth of copper ore production on a year-on-year basis declined significantly, turning negative during 2011-12 and 2014-15. During 2014-15, copper concentrate production stood at 107,000 tonnes as compared to 139,000 tonnes during 2013-14, registering a significant decline of about 23.02 per cent. For the five-year period 2010-11 to 2014-15, copper concentrate production declined at a CAGR of around 6 per cent. For fiscal year 2015-16 (as of November 2015), the production of copper concentrate was 83,000 tonnes.

During 2014-15, copper ore production was the highest in Madhya Pradesh (68.55 per cent), followed by Rajasthan (26.42 per cent) and Jharkhand (5.03 per cent). In the production of copper concentrates too, Madhya Pradesh had the highest share (53.45 per cent), followed by Rajasthan (41.05 per cent) and Jharkhand (5.49 per cent).

Copper is used in a vast array of applications, ranging from electronics and telecom to the transportation sector. According to estimates of the International Copper Study Group  (Indian Minerals Yearbook 2014), the electrical and telecommunications sectors are the largest consumers of copper with a share of about 56 per cent. HCL is the only integrated primary producer of refined copper in the country.

Copper prices in India are fixed on the basis of the London Metal Exchange rate and the dollar-rupee exchange rate. Between April 2014 and September 2015, domestic copper prices averaged around $6,254 per tonne. Prices reached a low of $5,089 per tonne in August 2015. The downward trend in prices is primarily due to the declining demand from China, which accounts for about 45 per cent of the global copper consumption.

Lead and zinc ores and concentrates: During 2014-15, lead and zinc ore production stood at 9.35 mt as compared to 9.28 mt in 2013-14, a marginal increase of 0.75 per cent. During the five-year period 2010-11 to 2014-15, lead and zinc ore production in the country increased at a CAGR of 5.53 per cent. Production of these ores is confined to the state of Rajasthan. During 2014-15, the production of lead and zinc concentrates increased at a CAGR of 7.73 per cent and 1.29 per cent respectively. For 2015-16 (as of November 2015), the production stood at 172,000 tonnes and 1.04 mt respectively.

Zinc is primarily used for protecting steel through galvanisation, and the galvanising industry accounts for 57 per cent of total consumption. The leading consumer of lead is the battery industry, accounting for about 74 per cent of the total consumption. Hindustan Zinc Limited (HZL), a subsidiary of Vedanta Limited, is the main producer of zinc and lead in the country.

Between April 2014 and September 2015, zinc prices averaged at around $2,123 per tonne. During the same period, the prices fell to the lowest level ($1,719 per tonne) in September 2015. The primary reasons for the fall in prices are the slowing economic growth in China and decline of consumption in the US. Lead prices averaged around $1,957 per tonne between April 2014 and September 2015. As in the case of zinc, lead prices too have been declining from May 2015 onwards.

Non-metallic minerals

The total production of key non-metallic minerals (limestone, dolomite, gypsum, quartz, kaolin, magnesite, silica sand and other sand) increased from 265.94 mt in 2010-11 to 312.17 mt in 2014-15, a CAGR of 4.09 per cent. As compared to 2013-14, production in 2014-15 increased by only 0.24 per cent. Limestone retained its leading position in the total production of non-metallic minerals, followed by dolomite, kaolin, silica sand, gypsum, other sand and magnesite. The number of reporting mines of non-metallic minerals increased from 1,827 in 2010-11 to 2,148 in 2014-15, a CAGR of 4.13 per cent. However, in comparison to 2013-14, reporting mines have declined by 13.5 per cent.

The total volume of exports of select non-metallic minerals increased from 3.34 mt in 2013-14 to 4.45 mt in 2014-15, an increase of 33.32 per cent. Similarly, the total volume of imports of these minerals increased from 18.39 mt in 2013-14 to 19.86 mt in 2014-15, an increase of 8.02 per cent. For the period April-September 2015, total exports of select non-metallic minerals stood at 2.33 mt, at a value of Rs 4.45 billion, while 2.8 mt of non-metallic minerals were imported at a value of Rs 14.75 billion.

The demand for non-metallic minerals is expected to grow very rapidly due to increasing levels of consumption and infrastructure development. The demand for limestone and gypsum is mainly driven by the growth of the cement industry. Given the increase in the demand for cement, the demand for limestone will also continue to grow.  Besides this, amendments to the MMDR Act, fiscal incentives by the government and the allowing of foreign direct investment in the sector will all help in improving transparency in the allocation of mineral resources and therefore encourage investment in non-metallic minerals.

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