The mining industry plays a crucial role in shaping the country’s growth and development. The sector has witnessed a gradual improvement in production after consecutive annual output contraction during 2011-14. While mineral production recovered marginally in 2014-15, a significant increase in output was recorded in 2015-16. However, the production of some essential minerals such as lignite and zinc failed to revive, with output falling further in 2015-16. In the first half of 2016-17, overall mineral production continued to increase. An output of 254.7 million tonnes was recorded during this period, a 7 per cent per cent increase over the corresponding period in the previous year.
While output in the mining sector increased in 2015-16, revenue and profitability of key industry players were far from encouraging. The majority of the companies saw their profits taking a severe hit during the year. This can be largely attributed to the fall in global commodity prices by over 50 per cent for most minerals over the past few years.
Value of mineral production
The value of India’s mineral production had started to decline 2013-14 onwards owing to restrictions on exports, ban on mining in some states and a decline in commodity prices. However, growth has gradually picked up since. In 2015-16, the value of total mineral production in the country stood at Rs 2,689.6 billion, a marginal increase of 0.49 per cent as compared to minerals worth Rs 2,676 billion produced in 2014-15.
During 2015-16, fuel minerals accounted for an estimated value of Rs 1,829.2 billion or 68.01 per cent of the value of the total minerals produced. Further, metallic minerals worth Rs 310.66 billion or (11.55 per cent of total value) and non-metallic minerals (including minor minerals) worth Rs 549.69 billion or (20.44 per cent of total value) were produced in 2015-16.
In the current fiscal year, the total value of mineral production (metallic and non-metallic minerals) for the period April-November 2016 was valued at Rs 260.31 billion. This is marginally lower than the value of Rs 263.05 billion recorded for the same period in 2015-16. Metallic minerals accounted for a major chunk, about 81.6 per cent, of the total mineral production in April-November 2016. The balance 18.4 per cent is attributed to non-metallic mineral production.
In addition, the index of industrial production (IIP) for the mining sector (base year 2004-05) for 2015-16 is estimated to be 129.2. This denotes a growth of 2.1 per cent over the figure of 126.5 recorded in 2014-15. For the month of November 2016, the index stood at 135.9 with a corresponding growth rate of 3.9 per cent as compared to the IIP level for November 2015. The cumulative growth in the index, for both fuel and non-fuel production, during April-November 2016 was 0.3 per cent over the corresponding period of 2015.
Operational performance
India Infrastructure Research has analysed the production and operational performance of 12 key mining players in 2015-16 vis-à-vis their performance in 2014-15. While most of these players have recorded positive growth in mineral production, some players have also seen a decline in output.
The key coal players in India – Coal India Limited (CIL), Singareni Collieries Company Limited (SCCL) and Tata Steel Limited (TSL) – have all seen positive growth in production in the range of 3-15 per cent. The iron ore industry witnessed a substantial increase in production, with industry majors like Vedanta Limited and Steel Authority of India Limited (SAIL) recording growth rates of over 700 per cent in 2015-16 over the previous year. TSL also recorded a year-on-year growth of 20 per cent in iron ore production for 2015-16. However, the National Mineral Development Corporation (NMDC) witnessed a decline of about 6 per cent in iron ore production in 2015-16.
Key players in the lignite segment have reported a fall in output for the period under consideration. While the Gujarat Mineral Development Corporation (GMDC) reported a decline of 20 per cent in lignite production, Neyveli Lignite Corporation’s (NLC) lignite output dropped by about 4 per cent in 2015-16 over 2014-15. The fall in lignite production can be attributed in part to the availability of cheap alternative fuels such as imported coal and pet coke.
Analysing the production performance of bauxite players in the mining sector indicates a mixed result. While GMDC’s production almost halved in 2015-16 vis-à-vis the previous year, National Aluminium Company Limited (NALCO) recorded a positive growth of about 10 per cent in bauxite production. Further, Hindalco Industries Limited’s production of alumina and aluminium increased during the same period.
Hindustan Copper Limited (HCL), the industry major for copper production, recorded positive growth. Meanwhile, zinc production in the country dropped, with negative growth rates recorded by Hindustan Zinc Limited (HZL). However, HZL recorded an annual increase of about 27 per cent for lead production in 2015-16.
Financial performance
The financial results for 2015-16 of 11 key players in the mining industry – CIL, GMDC, HCL, Hindalco, HZL, NALCO, NLC, NMDC, SAIL, TSL and Vedanta – have been analysed. The results portray a dismal year for these companies. Most of the players recorded falling revenues and profitability in 2015-16, owing to highly volatile and falling commodity prices. Weaker demand from China also led to a fall in the companies’ sales and revenues.
Among the companies considered, NMDC recorded the largest dip in revenue of about 44 per cent. Very few companies (CIL, NLC and Vedanta) have shown positive revenue. Of these, Vedanta recorded the highest revenue growth of about 12 per cent.
The fall in revenue has, in turn, severely impacted the profitability of these mining majors. Barring CIL and Vedanta, all the other companies were in the red in 2015-16. The losses reported in the mining sector have been largely in the range of 23-55 per cent. However, SAIL reported a particularly bad year with a fall in profits of over 300 per cent.
On the other hand, Vedanta managed to arrest the decline in profits of 2014-15 by recording a 184 per cent year-on-year growth in profits in 2015-16. The company reported increased sale volumes and cost efficiencies.
Future outlook
Over the past two to three years, several developments have helped shape the mining sector in the country. Measures such as the ban on mining activity in some states and the deallocation of coal blocks (eventually followed by a lifting of the ban and fresh auctions) have impacted the production performance.
In addition, new policy measures such as the Mines and Minerals (Development and Regulation) Amendment Act, 2015; the Mines and Minerals (Development and Regulation) Amendment Act, 2016; and the National Mineral Exploration Policy (NMEP) have been introduced. While the first two will facilitate the transfer of mining leases, the NMEP will help accelerate exploration activities through enhanced private sector participation. These measures are expected to revive mining activity significantly.
However, several pressing concerns continue to hinder sector growth. These include land use and its availability, a shortage of skilled manpower, financial constraints, low equipment productivity, and environmental issues. Besides, with incompatible and disconnected IT solutions being used in silos by players and most of the data generated lying unutilised, the level of technology deployment in the sector is yet to mature. The level of automation also remains at a nascent stage, although some companies have started making progress in this regard. Therefore, mining sector players need to aggressively deploy technology-centric solutions to enhance their production efficiencies.
