(Bloomberg) -- The drumbeat of voices forecasting India could rely more on global markets for iron ore next year is getting louder.
Delays in auctions of mining leases that are due to expire in March are threatening to disrupt the country’s production of the key steel-making raw material and raising the prospect of higher imports, according to the Federation of Indian Mineral Industries.
“We see a bleak scenario as of now for the next year” for the mining industry and employment in the sector, R.K. Sharma, secretary general of the New Delhi-based industry group, said by phone Monday. “If we cannot produce, then we will import.”
The industry group isn’t alone in its prognosis. Citigroup Inc (NYSE:C). last month forecast the country could become a net importer of 25 million to 30 million tons as the expiry of mining leases threatens to disrupt nearly a quarter of India’s output. That would be the most in records going back to 2009.
In 2015, India embraced competitive auctions as the best long-term approach to clamp down on corruption after scandals over allotments of mines. The slow pace of auctions could push the domestic iron ore market to a deficit from a surplus, and lead to a disruption of as much as 55 million tons of production capacity in the next fiscal year, ICRA Ltd., the local arm of Moody’s Investors Service, has said.
Under the new policy, India is set to auction 48 mining leases of independent miners before March 31, according to the mining federation. The new mining leases will be effective for 50 years.
Market Distortions
The auctions have been a total failure and even after three to four years, many projects are far from being operational, Sharma said, adding that about 260,000 people may lose their jobs if the mines up for auctions by next year stop production.
“With the kind of taxes we have on mining and the cost of auctions, it will distort the market,” Sharma said. That’s likely to push steel mills to evaluate whether importing the material would be a cheaper alternative to local purchases, he said.
India was last a net importer of the raw material in 2015 when the country shipped in 10.6 million tons of the mineral compared with 4.3 million tons of exports, according to trade ministry data. Last year, it exported 18.3 million tons and imported 15.89 million tons.
The government is taking steps to avert supply disruptions. The mines department is in talks with the federal environment ministry to allow winning bidders of mines whose leases expire by March 2020 to start operations without delay if the mine has valid environmental and forest approvals, according to people familiar with the matter. Last month, it allowed state-run Steel Authority of India Ltd. to sell 25% of its annual production in the local markets to boost supplies.
“This year, everybody is trying to extract as much they can, because they don’t know what will happen after March 31,” Sharma said.
