A delay in the auction of iron ore mines, whose licences are expiring by March next year, could hit steel production significantly in the country, a report has cautioned.
Licences of 288 merchant mines, of which 59 mines are under operations, will expire by March next and if the auction of the mines is delayed it could significantly affect the steel production, the report by rating agency India Ratings (Ind-Ra) said.
Majority of these 59 blocks are iron ore mines situated in Odisha and Karnataka with around 85 million tonnes of approved annual capacity, the report highlighted.
Ind-Ra estimates that around 60 million tonnes of the actual production of iron ore from these mines could be disrupted.
"Considering that the auction process on an average takes three to six months to complete, a delay in initiating them until the latter half of 2019 due to the Lok Sabha elections in the country could affect the timely auction of mining lease," it added.
The credit profile of merchant miners and non-integrated steel players could come under stress, the report said.
"The share of outstanding funds credited to the iron and steel sector to the total fund-based banking credit is about 5 per cent i.e. Rs 2.85 trillion (Rs 2.85 lakh crore)," it said.
Under the Mines and Minerals (Development and Regulation) Amendment Bill 2015, licences of mines expiring will not be renewed and the mines will be allotted on the basis of fresh auction.
"... Auction to operation process also gets elongated typically due to delays in obtaining environmental, wildlife and forest clearances. The G2 resource prospection is a pre-requisite for auction which some of these mines may not have at the moment," the report noted.
The report assumes significance as India has set an ambitious target of ramping up its steel production capacity to 300 million tonnes by 2030-31.
Ind-Ra expects steel players such as JSW Steel, Rashtriya Ispat Nigam Limited and other steel companies, which are either under stress or referred to National Company Law Tribunal, to increase their production in 2020.
Absence of domestic iron ore -- a key raw material for steel making -- supply will necessitate an increase in the import of iron ore mix, potentially leading to an increase in the cost of production.
However, low-grade optionality is available for players such as JSW Steel which has a beneficiation facility.
Furthermore, smaller companies which are away from ports and operate in the landlocked region could face disruption in operations as they are primarily dependent on the domestic merchant miners for iron ore, the report added.