The mining sector has witnessed significant activity in the past few years. The production of key minerals and ores has increased since 2011-12 leading to greater self-sufficiency. While policy changes have been introduced to encourage further investment in the sector, export and import trends have been varied, owing to global price volatility and changes in demand.
Meanwhile, the mining sector’s contribution to the country’s gross value added (GVA) has shown a mixed trend, though mineral prices have remained more or less stable. While opencast mining techniques have been deployed and advanced technology and software adopted, several issues continue to pose hindrances to sector growth.
Indian Infrastructure takes a look at recent trends in the mining industry…
Trends in production, consumption, export and import
The production levels of almost all major minerals reported an increase in output in 2015-16 as compared to 2014-15. Specifically, the production of bauxite and iron ore increased at a year-on-year growth rate of about 27 per cent and 20 per cent respectively. Iron ore production took a severe hit during 2011-15 due to mining bans imposed by the governments of Karnataka, Goa, Odisha and Jharkhand. However, the resumption of mining activities in 2015-16 resulted in a pickup in iron ore production. While these minerals recorded positive output growth, the production of lignite and zinc concentrate fell by about 9 per cent and 2 per cent, respectively, in 2015-16 as compared to the previous year.
In 2016-17, most key metallic minerals, including bauxite, copper concentrate, lead concentrate and zinc concentrate, reported a decline in output during April-November vis-à-vis the same period in 2015-16. On the other hand, iron ore production recorded a year-on-year increase of 24 per cent during the period under consideration, while limestone, a key non-metallic mineral, also recorded a positive growth of about 5 per cent.
In terms of demand, coal and limestone account for the highest quantum of mineral consumption. While the country is self-sufficient in most of its key minerals (including bauxite, copper, iron ore and limestone), it relies on imports for meeting its coal demand, as only about 74 per cent is met through domestic supplies. The country is almost self-sufficient in the production of zinc ingots (99 per cent), but continues to rely on imports for meeting its lead (primary) requirements, as only 53 per cent of the demand is met through domestic production.
The exports and imports of minerals have exhibited a mixed trend over the years. There has been a steady increase in the import of coal and limestone. Coal has a major share in the country’s total mineral imports. While a significant jump in the level of iron ore and bauxite imports was recorded in 2014-15, imports of these minerals dropped in the following year. During April-October 2016, the declining trend in iron ore imports continued. However, there was a marginal increase in imports of aluminium ores and concentrate.
Meanwhile, iron ore exports declined steadily from 2011-12 to 2015-16. From an export level of 47.15 million tonnes (mt) in 2011-12, the figure dropped to only 5.45 mt in 2015-16. This was owing to depressed domestic production, a decline in global prices and the imposition of export duties on low-grade iron. However, in spite of this decline, the volume of iron ore exports continued to remain very high. In 2016-17, the decline in iron ore exports was arrested and an export level of 11.21 mt was recorded during April-October 2016.
On the other hand, bauxite exports almost doubled to 6.8 mt in 2014-15 vis-à-vis 2013-14. The growth which continued in 2015-16 (9.8 mt) could be attributed to greater demand from China. However, during April-October 2016, the export of aluminium ores and concentrate slowed and only 1.3 mt was exported during these seven months.
Though the export of zinc ores and con-centrates grew substantially from 45.5 tonnes in 2014-15 to 615.1 tonnes in 2015-16, only 0.1 tonne was exported during April-October 2016.
Value addition and pricing trends
The quarterly GVA of the mining sector at constant (2011-12) basic prices since 2014-15 exhibits a mixed trend. While the GVA hit a trough in the second quarters of 2014-15 and 2015-16, it peaked in the fourth quarters of these years. Overall, the contribution of the mining sector to the country’s GVA declined from a peak of 16.5 per cent in the first quarter of 2014-15 to a negative contribution of -0.4 per cent in the first quarter of 2016-17.
The index of industrial production (IIP) for the mining sector (base year 2004-05) for 2015-16 was estimated at 129.2, a 2.1 per cent growth over the 126.5 recorded in 2014-15. For the month of November 2016, the index stood at 135.9, a growth rate of 3.9 per cent from the IIP level for November 2015.
With regard to commodity prices, from March 2015 to October 2016, the prices of key minerals were not very volatile. While the prices of lead, aluminium, and copper were more or less stable during the period, zinc prices showed an increasing trend in 2016. Iron ore prices were the most volatile during the period under consideration. However, this volatility was comparatively lower than that in global markets.
Other key trends
The Indian mining sector relies heavily on opencast or surface mining methods to extract mineral deposits near the earth’s surface. Opencast mining is perceived to be more efficient than underground mining, which extracts mineral deposits from deeper levels. In addition, underground mining requires higher technical expertise and larger investments.
Mining companies in the country are increasingly adopting advanced software packages for mine planning and design. These are being deployed for applications such as ore modelling and for carrying out exploration activities. Further, to enhance productivity levels, GPS devices are being utilised to carry out real-time analysis of equipment, vehicles and project sites. Such developments are expected to aid in streamlining the industry’s supply chain and ensuring worker safety.
At the same time, led by Coal India Limited (CIL), contract mining has picked up pace. However, the extent of responsibility and the role of the private sector/contracting firm in the mining space continues to vary according to the type and size of mines. The setting up of joint ventures and increasing in-house expertise are also gaining traction.
Meanwhile, more minerals/ores are being discovered at increasing depths which is resulting in a higher stripping ratio. The rock formations at these depths tend to be harder which renders mining activity even more difficult.
The industry is still lagging behind in equipment utilisation owing to shortages of skilled manpower. At present, these levels are 70-80 per cent at best. For instance, at CIL, in 2015-16, the utilisation of equipment such as draglines, shovels, dumpers, dozers and drills was 78 per cent, 77 per cent, 73 per cent, 56 per cent and 60 per cent respectively. Factors such as the non-availability of spare parts, sequential operations, unforeseen mining conditions, the lack of skilled manpower, power outages, and slippage in usage have resulted in low equipment utilisation levels. Thus, there exists immense potential for improvement. Measures such as proper equipment maintenance, better planning, rigorous training of manpower, scenario-based standard operating procedures, and the deployment of appropriate technology systems need to be adopted to increase equipment utilisation.
The industry has also steadily moved towards the deployment of higher capacity equipment. Meanwhile, investments in energy efficient equipment and devices are also gaining traction. Such equipment provides good returns and reduces the carbon footprint of mining activities. However, there is a lag between technology deployment and returns on investment to the industry.
At the same time, mineral exploration remains inadequate with the industry often failing to meet its exploration targets. According to the Ministry of Mines, exploration spend in the country is around $9 per square km, one of the lowest in the world. The fact that less than 10 per cent of the country’s land mass has been geoscientifically surveyed for the presence of minerals reflects the huge potential for further exploration activity.
The way forward
Despite challenges, the mining sector is expected to grow in the years to come. The recent changes in the sector’s policy framework and an increase in demand for mineral output will push the growth trajectory. Minerals such as coal, iron ore, bauxite and limestone will provide the maximum opportunity since they serve critical end-users such as the power, cement and steel industries. Going forward, the greater adoption of technology and equipment along with underground mining methods, is expected. Minerals such as zinc and copper offer significant potential for underground mining.
In addition, the focus on increasing output and long-term profit margins, the safety of miners, the need for operational flexibility, and deeper deposits/higher stripping ratios are likely to result in greater mechanisation of mining activities. While there are several opportunities for contract mining, institutional capabilities will have to be enhanced. Such steps will not only increase mining output, but will also ensure fair play and greater participation by the private sector.