Positive Sentiment

Outlook and opportunities in mining

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. Exploration is expected to pick up pace with the introduction of noteworthy policies such as the National Mineral Exploration Policy, 2016 and the draft National Mineral Policy, 2018. Greater investments and the enhanced role of the private sector are some of the likely outcomes of the new policies. Other policy initiatives also bode well for the industry that has awaited these for a long time.

Growth drivers

Demand for mining output is a big plus. Bulk minerals such as coal, iron ore, bauxite and limestone present the maximum opportunity. These minerals serve critical end-use industries such as power, automotive, cement and steel, and are thus expected to witness high growth. The mining sector will also receive a major boost from infrastructure and construction activities.

The government’s Make in India initiative is expected to drive the growth of several critical industries including mining. In fact, the success of the initiative will depend on the growth of the mining industry, without which the manufacturing segment may need to rely on imports. Demand for iron and steel is set to continue, given the strong growth expectations for the residential and commercial building industry. Besides, other government programmes such as the Smart Cities Mission and Housing for All by 2022 will also provide a major boost to the construction sector, which will, in turn, underpin the expansion of mining activities.

In the power sector, coal and lignite are the key sources of fuel for electricity generation. Although there was subdued demand for coal from the sector, the government’s initiatives will increase the demand for coal and lignite in the near future. The rapid strides towards clean energy, particularly solar and wind, are a win for copper, which is necessary for the conducting electricity in all energy technologies, be they traditional or alternative.

The sustained growth in India’s automotive sector has been driving demand for steel and aluminium. With rising incomes and growing urbanisation in the country, the growth prospects for this sector are encouraging, translating into some buoyancy for steel demand. This is expected to create a significant demand for minerals such as iron ore and bauxite. More recently, electric vehicles are gaining traction due to the thrust on reduction of carbon emissions. The government’s Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) programme aims to move towards an all-electric fleet by 2030. This will enhance the demand for copper manyfold as these vehicles use a substantial amount of copper in their batteries.

India is the second largest producer of cement after China. The outlook for the sector is bright in the medium term, though the near-term outlook appears challenging. With the increasing focus on infrastructure development and the housing sector (urban and rural), corporate confidence has increased. The cement industry’s expected expansion in the medium term will be a key contributor to the demand for coal, lignite and limestone.

With stability being witnessed in the steel sector globally, the demand for the metal in emerging and developing economies, excluding China, is expected to grow moderately in the next two years. Moreover, the construction sector is expected to maintain a steady recovery momentum in India. These factors together will provide a fillip to the consumption of steel which will, in turn, drive the demand for iron ore.

Market opportunities

There is huge scope for increasing underground mining operations in the country as the technique accounts for less than 10 per cent of the total output at present. Underground mining will no doubt gain traction, given the depth at which mineral reserves are to be found. As the technique is equipment intensive, it presents a major opportunity for equipment providers. It must be noted that all minerals, including coal, will require large-scale equipment to carry out mass production mining.

Going forward, there are abundant opportunities for contract mining/mine developer-cum-operators (MDOs). However, judicial and institutional capabilities must be enhanced to support the sector. Such steps will not only increase mining output, but will also ensure greater participation by the private sector. The monopoly player, Coal India Limited (CIL) is planning to outsource its mining operations (especially for underground mines) in the future. With its non-mechanised mines and high manpower deployment, CIL is incurring losses in its mining operations. IT has therefore decided to outsource its underground mines to contract mining companies on a public-private partnership basis/MDO model to firms with the requisite technical expertise.

Conclusion

Going forward, there will be high demand for minerals due to an assured market from various consumer segments. There exists untapped potential in user industries such as steel, which will receive a major boost from the booming automotive sector and the recent policy measure (National Steel Policy, 2017). The government’s move to allow commercial mining in coal is a notable step to encourage private participation. In a bid to achieve the government’s production target for key minerals such as coal, mining companies will ramp up output. Further, with the trend of global commodity prices bottoming out, the upcoming auctions of key minerals such as limestone and iron ore are likely to witness better participation.

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