Thread-

What has changed in steel industry in last 1 year?

The govt has decided to auction all mines to the highest bidder.

Mines sold at 105% premium. If the merchant miner buys the mine, it will never make a profit. If it sells Iron ore at ₹100, it has to pay ₹105 to govt

So, some merchant miners who got mines allotment recently in Odisha in March 2020, haven't started production yet.

They bid at a high premium, but are now in a fix.

How do they make money?

The govt wanted mines to be allotted in a transparent manner.

But due to high premium, only big steel players make money at 100%+ premium.

Merchant miners are left out as they can't survive if they pay more than what they make.

Result - the Iron ore supply has gone down, as merchant miners (newly allotted mines) aren't mining any more.

Integrated steel makers have their own Iron ore.

It is the small steel makers who don't have mines who will suffer big time.

1. The Iron ore price will rise. It will lead to chronic shortage in coming years as demand > supply due to merchant miners being left out due to 100% premium in auction.

2. The steel supply from small steel makers will come down. Leading to rise in price of steel as well.

With demand of steel coming back, the Iron ore prices have started rising.

The small steel makers are crying now a days due to lack of iron ore.

The rules of iron ore mine auction are likely to remain the same leading to long term change in the industry structure.