Mining industry faces ‘tough’ 2016 even as auctions pick pace
New Delhi : India’s multi-billion dollar mining industry faces a “tough” 2016 ahead amid weak global markets, even as the government plans to fast-track auctions and check illegal mining with satellite-based surveillance.
A number of policy measures are in works to revive the sector that saw earnings take a beating due to softening prices and subdued demand, but experts do not see any imminent revival without a global commodity market recovery.
The major steps taken by the government in 2015 to revive the industry included passage of the Mines and Minerals (Development & Regulation) Act and initiating the process for starting auction of mines bearing minerals such as iron ore, bauxite and limestone.
The government also notified National Mineral Exploration Trust (NMET) to encourage mineral exploration and followed up on various rules and guidelines that can help in improving the the ease of doing business for miners.
But, 2015 would still be remembered as a “depressed and distressed” year for the industry, when it saw earnings dive south on account of excess production and subdued demand, which led to prices of some commodities, like that of iron ore hit the ten-year low levels.
Besides, the spectre of demand slowdown in China, the world’s biggest metal consumer, led to the markets across the world including India getting flooded with cheap imports of steel, aluminium and other finished products — a development that has adversely impacted the domestic mining industry.
Summing up the sentiments, Mines Secretary Balvinder Kumar told PTI: “Mines industry is passing through a distressed and depressed phase. Supply is outstripping the demand. 2016 will be a tough year for the industry as indicators on the global level are also not very encouraging.”
He further said that 2015 has been a challenging year for the industry and the market sentiment was also low, both in India and globally.
Mines were closed due to after-effects of various judicial pronouncements such as the Shah Commission report on illegal mining, he added.
“But, if you look at the government’s efforts, we have tried to restore confidence of the mining industry and the biggest step is passage of the MMDR Act in March. Other initiatives like the NMET, District Mineral Foundation (DMF) and rules and guidelines regarding mineral concessions and others will play a major role in increasing ease of doing business,” Kumar noted.
The Ministry expects that the first phase of mines auction will be over by March 2016,, Kumar said while adding that the government expects to auction 65-70 mines.
“States have put 31 blocks to go for auction in the current auction. By month-end, we expect 18-19 more to come and in the next 1-2 months another 16 are expected. So by end of this fiscal 65-70 mining blocks can be auctioned,” he said.
Another major initiative include checking illegal mining in the country is a partnership with Indian Space Research Organisation (ISRO) for satellite surveillance of mineral blocks.
Consultancy major EY’s National Leader (Metals and Mining) Anjani Kumar Agrawal said some of the positives for the sector in 2016 could include commercial mining for private players, states permitting commercial mining activity and increased bidding for coal, iron ore and other minerals.
However, margin squeeze due to weak international commodity price crashing and over ambitious auction bids, like those witnessed in coal auctions, may lead to stranded assets could hurt the sector in the new year, he added.
According to global giant Moody’s also, the metals and mining sector is likely to continue to face challenges in 2016.
Due to weaker growth expectations for 2016, softening demand and continued uncertainty surrounding metal demand in China, Moody’s expects the metal prices to remain under pressure with a deeper and longer base metals downturn.
New regulations like the Coal Mines (Special Provisions) Act and the MMDR Act are huge positives and the coal auctions being conducted and other minerals getting ready for auction are other key highlights for the sector, Agrawal said.
He further said that the Coal Mines and the MMDR Acts are expected to provide an impetus to the mining activities in India and the sector is expected to see significant activity — like increased grant of mining leases, participation of commercial miners, etc — in the future.
“However, the intensity of players while participating in mineral auctions is dependent on a host of factors which are in turn tied to various state policies and individual end use product/metal characteristics,” he said.
Indian mining industry is starting to experience phenomenal changes driven by regulations and auction framework introduced for granting mining concessions to enhance transparency, he added.
Under the revenue sharing model, the states have the opportunity to be a collaborative partner. There are some strategic imperatives that still need to be addressed for achieving success and overall sustainable growth, he said.
The market for minerals will move in tandem with the demand for finished products. As there is an interplay of global and local demand supply factors, domestic demand will be a key driver for the minerals, Agrawal explained.
“As mining is a long term activity and takes time to fructify, expecting new regulations to immediately rejuvenate the sector will be misplaced optimism. However the new acts definitely go a long way to untangle and bring in transparency in the sector,” he said on the market outlook for 2016.