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Business News/ Companies / People/  Falling iron ore prices to make Sesa Sterlite’s exports from Goa unprofitable
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Falling iron ore prices to make Sesa Sterlite’s exports from Goa unprofitable

Even if mining resumes in Goa, Sesa Sterlite faces challenges of falling iron ore prices in the global market

A file photo of Sesa Sterlite chief executive officer Tom Albanese. Photo: Bloomberg Premium
A file photo of Sesa Sterlite chief executive officer Tom Albanese. Photo: Bloomberg

Mumbai: The Goa government is on the verge of introducing its new mining policy to reopen mines, but falling prices of iron ore in the global market will make Sesa Sterlite’s sales unprofitable, according to the company’s head and analysts.

“We are facing a lean time in iron ore until we can see the resumption of exports from Goa and that would be not only with the lifting of the ban, with the clarity around the lease extensions but also a recognition that any exports would be non-competitive with the current export duties in place," Tom Albanese, chief executive officer of Sesa Sterlite said.

Sesa Sterlite, a unit of the Anil Agarwal promoted Vedanta Resources Plc and India’s second-largest iron ore producer, had to suspend its mining operations in 2012 when the Supreme Court upheld a ban while hearing out an environment and illegal mining case covering all of the state.

Supreme Court allowed mining to reopen in April subject to rules, but the state government is now working on its mining policy that would give approvals to individual mines and clarify issues related to mining leases.

An analyst said if mining operations resume this year, the company would choose to produce and take losses.

“For Sesa Sterlite, iron ore’s contribution to profits is very less, so its impact on the overall numbers might not be significant," said Goutam Chakraborty, metals analyst at Emkay Global Financial Services Ltd. “Its other profitable businesses (oil and zinc) will have to continue to subsidize the iron ore business."

Chakraborty said if iron ore is exported from Goa to China at current prices, it would work out to about $10 a tonne more expensive than that from Australia, so chances are the company may have to heavily discount it at the cost of taking a hit at its bottom line.

A 15% royalty, an export duty of 30% and a fund of 10% of sale price to be contributed to the Goan Iron Ore export Fund under the Supreme Court’s directive would make Goan ores uncompetitive in the global markets.

The company would have to target the export market as selling to the local steel makers would necessitate pelletization (value addition) and that would make the pellets more expensive than ore available in other parts of India, analysts said.

“The Chinese steel capacity continues to grow and the iron ore requirements continue to grow. It is going to be more difficult now to return to the Chinese market but we would attempt to do so," Albanese said.

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Published: 20 Sep 2014, 10:55 PM IST
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