The Indian state of Goa is preparing to mine iron ore after a three-year gap just as the commodity plunges amid a global surplus.
The benchmark price of ore with 62 percent iron content at China’s Qingdao port fell 5 percent Monday and is down about 40 percent in the past year. Goa’s mines are due to restart in October, even as Goldman Sachs Group Inc. sees a drop of about 30 percent in global prices over 18 months on excess supplies.
“The ore is worth more inside the mine than outside,” said S. Sridhar, executive director at the Goa Mineral Ore Exporters’ Association in the state capital, Panaji. “With the present taxes and prices declining because China is buying less ore, exports are unviable.”
Goa, once the biggest shipper of low-grade ore from India, shut its mines in September 2012 over claims of rampant illegal mining. They are opening again and targeting export markets despite a slump in raw materials as China’s yuan devaluation stokes concern that the global economy is faltering.
Local taxes levied on the ore add to the challenge, especially compared with Australian shipments, India’s biggest competition, according to miner Vedanta Ltd.
“The government will have to look at all kinds of taxations,” said A.N. Joshi, vice president for iron ore at Vedanta, which reopened a mine in the state earlier this month. “We have to mine in a very soft way so that we don’t disturb the already oversupplied market.”
Goa’s shipments may drop to 10 million metric tons in the 12 months ending March 31, 2016, from about 56 million tons in the 2012 fiscal year, the ore association estimates.
The scope for aggressive extraction is also curbed by existing stockpiles. The state government has about 8 million tons of reserves left from the 19 million tons it planned to sell, according to the local mines department.
The price of ore with 62 percent iron content at China’s Qingdao port rose 0.3 percent to $53.45 per ton on Tuesday. That compares with $106.46 at the end of September 2012, the month when Goa stopped the mines.
BHP Billiton Ltd, the world’s biggest miner, lowered its forecast Tuesday for China’s peak steel production to less than 1 billion tons.
Vedanta’s Joshi said the company is talking to two mills from China’s Jiangsu province over sales of Goan ore. The customers are surprised by the timing, he said.
“It’s difficult for them to believe that there is a government which stops you when you are at the highest of the market, and allows you to restart when you are at the lowest,” Joshi said.
Shares of Vedanta Ltd., a unit of London-listed Vedanta Resources Plc, ended 6.5 percent higher at 86.40 rupees in Mumbai on Tuesday as the S&P BSE Sensex rebounded from a plunge the previous day.