By Bizodisha Bureau, Bhubaneswar, August 16, 2019: Odisha will auction eight mines with total reserves of 573 million tons later this month expecting high bids by steel companies.

But the ground situation indicates muted participation from steel makers as the demand for steel has slowed down and the economy is on shaky ground, experts said.

Leading steel makers including Tata Steel will need additional ore as they are all expanding and buying insolvent assets. Tata Steel itself is expanding its Kalinganagar plant in Odisha and needs more ore for Bhushan Steel Ltd that it recently acquired.

The current non-captive licences expire in March 2020. But the new lessees cannot start production unless they have environment and forest clearances. Infact, going by the past, it is clear that there have been cases where production couldn’t start for at least four years after the licence was awarded. If this trend continues, at least a quarter of the iron ore supply is expected to get disrupted impacting steel production.

However, steel makers hope that the central and state governments would facilitate to the extent possible to make the transition as seamless as possible with positive policy interventions.

Odisha produced around 114mt of ore in 2018-19, more than half of India’s total output. Hence the Odisha auctions are crucial in meeting the current and future iron ore requirements for the large steel companies. Going by the past records of auctions for iron ore blocks in India, the lease are acquired for a premium of 44.35% and the highest offer in subsequent rounds touching as high as 275%. The average bid price in 2016 for iron ore blocks in India was 86.5%, which increased to 93.6% in 2017 and 100.2% in 2018. In 2019, in the recent auctions of Karnataka and Maharashtra, the average bid price was pegged at 85.92%.

The bid premium is a percentage of the average monthly price of grades of iron ore, published by Indian Bureau of Mines. The mine is awarded to the highest bid premium offer.

However, iron ore mines in Odisha in normal circumstances attracts higher bid premiums because of the state’s better quality of ore.