KOLKATA (miningweekly.com) – India’s iron-ore e-auction trial runs in Karnataka and Goa and a proposal for an iron-ore regulator have placed miners and steel producers on a collision course.

Mining companies say existing mining and mineral legislation does not permit the e-auction of iron-ore, while steel producers accuse miners in Karnataka of cartel behaviour and manipulating prices.

With resource allocation and prices emerging as a bone of contention, steel producers are seeking committed iron-ore linkages for steel plants across the country and a sector regulator for standalone mining companies to oversee merchant sale and pricing.

“Considering that steel production is highly capital intensive, there has to be a clear acceptance of the fact that producers need captive iron-ore mines allocated on agreed parameters,” said Alloy Steel Producers Association chairperson Suketu Shah.

“A proposal for appointing a regulator for fixing prices of iron-ore produced by standalone miners will be an acceptable way out for long-term development of the mining industry,” Shah stated.

However, the Federation of Indian Mineral Industries (FIMI), the representative body of miners in the country, has rejected this proposal.

“This is a free market economy and the concept of an administered price mechanism for iron-ore goes against such an economic environment. In an open market, price determination should always be a function of demand and supply,” FIMI president Hukum Chand Daga stressed.

“There is no legal provision for appointment of a regulator for iron-ore mining. The steel industry too claims to be operating in a globalised environment … would they accept a regulator for pricing their finished steel products? Would steel producers have been able to increase steel prices twice in a single month in a regulated environment?” Daga questioned.

“Regulated pricing for raw material but free pricing for finished products cannot be a tenable market,” he added.

Industry representative body Associated Chambers of Commerce and Industry (Assocham) has come out in support of steel producers seeking a review of e-auction and is in favour of instead providing long-term linkages with mines for captive consumption.

“Electronic auction of iron-ore, instead of providing any relief to India's iron and steel industry will adversely affect it - more so as a lack of raw material has been a major cause for tardy progress of both greenfield and brownfield steel capacity expansion projects,” Assocham said in a communication to the Mines Ministry.

According to Assocham, iron-ore production in 2012/13 was 136-million tons, of which 42-million tons were captive production and 18.4-million tons were exported, leaving about 76-million tons for non-captive steel producers.

Meanwhile, the Society of Geoscientists and Allied Technologists (SGAT) has sided with iron-ore miners. In a statement, SGAT said e-auction was not permitted under the Mines and Minerals Development and Regulation Act and that the auction conducted by government-owned trading company MSTC Limited, as a third party, was not permitted under the mining lease agreement between the provincial government and miners.

SGAT maintained that e-auction would hinder development of a transparent and independent trading of minerals in an open market and the most efficient price discovery mechanism.