Growth Revives: Snapshot of the mining sector

Snapshot of the mining sector

The mining sector is one of the major contributors to economic growth. The country is well endowed with minerals, and these serve as raw materials for several sectors such as power, iron and steel, fertiliser and cement. At present, 88 minerals, comprising four fuel minerals, three atomic minerals, 26 metallic and non-metallic minerals, and 55 minor minerals, are produced in India. Odisha, Chhattisgarh, Rajasthan, Karnataka and Jharkhand are key mineral-rich states.

Reserves: Of all the minerals, coal is the most abundant, with total reserves of 305.87 billion tonnes (bt), followed by lignite at 44.11 bt. The coal resource base is skewed towards non-coking coal which has a share of about 89 per cent. Among metallic minerals, India has large iron ore and bauxite (metallurgical grade) resources, followed by copper. In the non-metallic minerals segment, deposits of limestone and manganese ore are the most abundant.

Production: During 2016-17 (till December 2016) the country’s total mining output was over 340 million tonnes (mt), valued at about Rs 260 billion. This was substantially higher than the 317 mt of output reported in the corresponding period of 2015-16. With regard to producing/live mines, a total of 1,878 mines reported production, with 38 per cent of the production being contributed by non-metallic minerals followed by metallic minerals (32 per cent) and coal (30 per cent). Compared to 2014-15, the number of mines that reported production declined by 47 per cent. This was attributable to a reduction in mines reporting production in the metallic and non-metallic groups of minerals in 2015-16. In terms of allocation, so far, 83 coal mines have been allocated, of which 31 have been allocated through auctions. Seven coal mines have been allotted for commercial mining. Besides, till December 2016, the Ministry of Mines had auctioned 19 mineral blocks.

In 2015-16, mining output recorded a growth of 9 per cent, a substantial turnaround after three consecutive years of contraction since 2011-12 and a marginal recovery in the year 2014-15. Some key minerals such as lignite and zinc concentrate registered a fall in production in 2015-16 over 2014-15.

Consumption: India is self-sufficient in most of the key minerals except coal and lead (primary). After coal, limestone and iron ore registered the highest demand (in absolute terms). Coal is used primarily for power generation, with 60 per cent of installed capacity being coal fired. Bauxite is used mainly for extracting aluminium (94 per cent share) as well as in the cement, chemical and abrasive industries. Nearly 98 per cent of the iron ore produced is used in the manufacture of pig iron, sponge iron and steel, while the remaining is used in other industries like ferro alloys and cement, and in coal washeries.

The cement industry is the major consumer of limestone, accounting for 93 per cent of its consumption, followed by the iron and steel industry (4 per cent), and other industries like chemicals, sugar, paper, glass, etc. The electrical and electronics industry is the key consumer of copper.

Policy push: Over the past two to three years, several developments have shaped the sector. These include a ban on mining activity in some states, the deallocation of coal blocks (eventually followed by a lifting of the ban and fresh auctions), and the introduction of new policy measures such as the Mines and Minerals (Development and Regulation) Amendment [MMDRA] Act, 2015, the MMDRA Act, 2016, the National Mineral Exploration Policy, etc. The lifting of the ban on mining activity, fresh auctions and the introduction of new policies are expected to revive activity in the sector.

Export and import: The export and import of minerals have exhibited a mixed trend over the years. For coal, increased production by Coal India Limited (CIL) in 2015-16 led to reduced imports during the year. Besides, the country is planning to export coal to Bangladesh going forward. Meanwhile, bauxite exports have been increasing, and almost doubled to 6.8 mt in 2014-15 vis-à-vis 2013-14. This can be attributed to increasing demand from China and the lack of adequate export curbs by the Indian government, which are hurting domestic aluminium producers who suffer from limited bauxite availability. The growth in exports continued in 2015-16. Among the key minerals, the export of iron ore is most significant in terms of volume though it has seen a steady decline in the past five years. This decline can be attributed to depressed domestic production, a decline in global prices and export duty on low-grade iron.

Key players: The coal and lignite sectors are dominated by the public sector with CIL being the major producer of coal. However, private sector participation in coal production through captive mines is also rising with the government’s strong policy push. In other mineral segments, while public sector units account for the larger share, private enterprises too have a significant share. In the limestone segment, seven to eight private players account for 49 per cent market share and the rest is accounted for by smaller players.

Equipment utilisation: Equipment utilisation in mining operations has remained much lower than desirable. Besides, the level of automation and IT adoption is still at a nascent stage, although some companies have started making progress in this regard. There is renewed focus on mine productivity improvement, cost efficiencies and safety while reducing the environmental impact of mining operations. Policy initiatives such as the MMDR (Amendment) Act, 2015; National Minerals Exploration Trust Rules, 2015; MMDR (Amendment) Act, 2016; the proposal to open commercial mining to the private sector from 2017-18; etc., are expected to drive industry growth and, thus, demand for new equipment and technologies.

Besides, companies are also using advanced software packages for mine planning and design. With growing mineral production, there is a greater thrust on improving safety standards for better hazard control. Mine developers and operators are bringing in the latest technologies and mine management practices. With mine depths increasing and ore grades depleting, the demand for underground mining and thus for specialised equipment is increasing. With larger-scale operations, the size of mining equipment being used has also increased.

Strong pipeline of projects: With regard to upcoming investments, a strong project pipeline holds promise. According to Indian Infrastructure Research, 299 mining projects are in the pipeline, of which 224 are under implementation, while another 75 have been announced. Together, these entail an investment of over Rs 1,569 billion. Minerals such as coal/lignite and iron ore are expected to offer the maximum opportunities. Besides, the market size of mining equipment is projected to reach about Rs 1,020 billion by 2019-20.

Key constraining factors: Some of the pressing concerns such as land use and its availability, shortage of skilled manpower, financial constraints, low productivity of equipment, and environmental issues continue to impact the sector and warrant immediate attention. There are problems with regard to technology deployment as well. With incompatible and unintegrated IT solutions being used in silos and most of the data generated not being used, the level of technology deployment is yet to mature. There are promising technologies available, but it will take time for these to be adopted. Financial constraints have been cited as a key factor that has led to low levels of technology adoption in the sector so far. Regulatory issues, poor supporting infrastructure, financial concerns, and global factors leading to price volatility are other issues that continue to impact the mining industry.

The way forward

In the coming years, the mining sector is expected to witness higher growth, despite the challenges. While changes in the policy framework will be significant enablers, the increasing demand for mining output will maintain the sector’s buoyancy. With regard to the type of mining method adopted, underground mining is expected to pick up, and enhanced technology and equipment adoption and the underground mining of minerals such as lead, zinc and copper are likely to offer significant opportunity to mining companies.

While a slew of policy measures have been taken in recent years, their effective implementation will hold the key. Without a doubt, a more stable and predictable regulatory environment has been established, but continued support from the government will be necessary to realise the sector’s potential.