Sunday, January 08, 2006

Revisiting Muthuraman's (Managing Director, TATA Steel) interview on export of iron ore being against national interest

This was an interesting article which lays out rational arguments against exporting iron ore. Couple of good analysis of why iron ore shouldn't be exported appreared in the papers when the POSCO MOU was signed. However, TATA's MD forgot to explain why exporting steel is such a good idea, and I feel strongly that the same arguments applies regarding exporting steel. And TATAs do export even iron ore, though in small quantities. And all their current plans are export oriented.

Steel and aluminium are strategic metals, vital for a nations security, specially when they are scarce and available in small quantities.

Exporting iron ore is against national interests: Tata Steel MD

Our Bureau, Hindu Business Line

Chennai , Aug. 16
ALLOWING exports of iron ore is "absolutely against national interests", Mr B. Muthuraman, Managing Director, Tata Steel, said today.

Speaking to journalists of The Hindu group here, Mr Muthuraman said it was "a dangerous trend" to allow exports of iron ore (even) in exchange for investment in steel capacity in India.
Explaining his stand, Mr Muthuraman observed that the countries that allowed exports of iron ore were only those that did not have potential for domestic consumption of steel. He gave two examples. Ukraine, which has the world's largest iron ore deposits of 70 billion tonnes, needs about 7 million tonnes of iron ore annually for its domestic steel industry — enough to last for a thousand years. Australia's iron ore deposits of 62 billion tonnes were enough to last for the next 500 years.

In contrast, India has about 18 billion tonnes of iron ore resources. The country's consumption is rising and is expected to match China's 300 million tonnes, from 30 million tonnes now. When that happens, the country's reserves will be exhausted in 55 years, he said.

Mr Muthuraman also noted that no country in the world allowed foreign companies to own iron ore mines. Indeed, no country allowed FDI in the steel sector. He said that international steel and mining companies were rushing into India only because they could not acquire mines anywhere else in the world. These companies were making it a pre-condition that they be allowed to export iron ore to their plants abroad. "This is a dangerous trend," he said.
Asked why Indian steel majors were voicing these concerns only now, although India has been exporting iron ore for long, Mr Muthuraman said that until recently the country used to export about 10 million tonnes of ore annually. But now exports have risen to about 55 million tonnes and were set to reach 100 million tonnes. Besides, all these years exports were mostly of fines, which otherwise go waste (unless they are pelletised in sintering plants). He stressed that Tata Steel had always been cautioning the Government against iron ore exports but the response had invariably been that the exports were of small quantities, so there was no cause for concern.
Asked why the Tatas were exporting chrome ore from their Sukinda mines in Orissa, Mr Muthuraman said that there were two reasons.

First, because of high power costs in India the cost of converting chrome ore into value-added products (stainless steel) was much more than the freight cost of shipping the ore to some other country and producing there. It therefore made sense to do the value addition where it was cheaper. Second, the consumption of stainless steel in India was low and, therefore, the chrome ore deposits — although far smaller than iron ore — would last much longer.

He drew a parallel with the aluminium sector, where, according to him, it did not make sense to produce the metal from alumina because of the power-intensity of the process. His reasoning was that export was a logical thing in the case of those minerals whose conversion costs were far higher here than, say, in South Africa, and the domestic consumption of finished products was not of significant quantities. However, till such time that the distinction could be made, Tata Steel was telling the Government to stop exports of minerals such as chrome ore.
"There is a difference between the various minerals, which unfortunately today the country is not yet mature enough to fully understand," he said. The ultimate objective was to have different policies for different minerals.

Mr Muthuraman said that the history of the global steel industry could be divided into three phases. In the period between 1900 and 1945 — a period marked by two world wars and the Great Depression — steel demand grew 3.4 per cent, but rose to 6.7 per cent in 1945-1975, thanks to post-war reconstruction efforts of the US and Europe.

However, demand growth fell to 1.1 per cent in the next quarter century as the infrastructure building got over in those regions and consumption stabilised. Since the beginning of this century, demand growth has accelerated driven by consumption in China and India. "The future of steel will be more like the 1945-1975 period than the 1975-2000 period," he said.
But with two major differences. One, the demand would be driven by countries far more populous than the US and Europe and two, the demand growth would be on a larger base of 1 billion tonnes. Thus the growth in the next 25 years would be more sustainable than in the 1945-1975 period, he said. This year, up to July, the industry grew by 7 per cent.
Globally, a number of changes had taken place. The steel industry, which was state-owned, was now increasingly getting privatised. This would result in efficiencies improving and costs coming down. The privatisation would be accompanied by more consolidation in the global steel industry. While suppliers to the steel industry as well its consumers were consolidated, the steel industry was fragmented, a situation that would now change.

The consolidation would also result in prices being stable. Long-term steel prices would be higher than the last 25 years, he said and added that those that will benefit are the companies that have captive raw material resources.

Mr Muthuraman said that the Indian secondary steel sector faced the danger of becoming unviable because of the high cost of power and dependence on imported scrap.
He said that units should set up sintering plants for converting fines into pellets and set up mini blast furnaces.

No comments: