Booming construction, automobiles and power industries boosting metals & mining sector in India

India is the world’s 3rd largest producer of coal, 4th largest producer of iron ore, and 3rd largest producer of crude steel. 100 per cent FDI is allowed in the mining sector and exploration of metal and non metal ores under the Automatic Route.

Definition / Scope
Market Overview
Top Market Opportunities
Market Drivers
Industry Challenges
Regulatory Trends
Other Key Market Trends
Market Size and Forecast
Market Outlook
Technology Roadmap
Competitive Factors
Key Market Players
Strategic Conclusion
References
Appendix

Definition / Scope

The metal and mining sector refers to the industry that is involved in the extraction of ores, fossil fuels, minerals, clay, stone, etc. The segments of metals and mining industry are as follows:

Iron and steel: It includes hot rolled parallel flange beams and column rails, wire rods, rails, cast products like billets, beam, blank, metals, etc.
Coal: It consists of primary coal such as anthracite, bituminous, lignite, etc.
Aluminium: It includes primary aluminium, alumina chemicals, aluminium extrusions, aluminium rolled products, etc.
Bauxite: Bauxite are divided into 2 basic types on the processing methods- tropical bauxite and European bauxite.
Base metals: It consists of lead, zinc, copper, nickel, etc.
Precious metals and minerals: It consists of gold, silver, rhodium, diamond, palladium and platinum.

Market Overview

The Mining sector in India gained momentum post-independence under the impact of successive 5 Year Plans. In 1956, the exploration of minerals was intensified and Indian Bureau of Mines was established to look after the scientific development of mineral resources.

In 1972, Mineral Exploration Corporation was established to conduct exploration with focus on coal, dolomite, limestone, iron ore and manganese ore. In 2014, Ministry of Mines notified revised royalty rates and dead rent in September 2014 and the revised rates came into effect on September 1, 2014.

In April 2017, an airborne geophysical survey of the Obvious Geological Potential Area was inaugurated which will cover a 0.2 million sq. km area. The total crude steel production in India reached 101.4 million tonnes in 2017, making the country the world’s 3rd largest crude steel producer.

Top Market Opportunities

The Mining Industry of India has been dominated by surface mining. However, there are various challenges presented by surface mining. Thus, the move towards underground mining is considered predictable. This gives an opportunity for players to enter the market with underground technology.
India’s per capita steel consumption was only 65.2 kg in 2017 as opposed to global average of 214.5 kg. There is untapped market with strong growth potential. The rural per capita steel consumption is likely to reach around 20 kg from 13 kg currently.
India has the world’s fifth largest coal reserves of around 319.02 billion tonnes in FY18. Moreover, India has the world’s seventh largest reserve base of bauxite and fourth largest base of iron ore and accounts for about 7 per cent and 11 per cent respectively of total world production.
Booming construction, automobiles and packaging industries are expected to boost the metals and mining sector in India.

Market Drivers

Higher Demand

The Indian construction industry is growing rapidly powered by large spends on housing, road, ports, water supply and transportation. Under Union Budget 2018-19, GOI has allocated US$ 92.22 billion for infrastructure sector.

Further, the construction industry is forecasted to grow 6.1 per cent on y-o-y basis in 2018. As iron and steel are the core components of the real estate sector, it provides attractive business opportunities for steel, zinc and aluminium producers.

Power Sector

The power sector in India accounts for a large share of the consumption of coal in the country. The power generation grew at a CAGR of 5.53 per cent during FY08-18. Coal based power generation is forecasted to expand at a CAGR of 6.5 per cent during FY18-FY23.

Policy Support

100 per cent FDI is allowed in the mining sector and exploration of metal and non-metal ores under the Automatic Route. The government allowed 100 per cent FDI in coal mining in March 2018. Further, FDI of up to 100 per cent is allowed under the Automatic Route to explore and exploit all non-fuel and non-atomic minerals.

The government is also encouraging private ownership for steel operations. Also, the profits of companies producing specified metals are given tax concessions under the Income Tax Act.

Increasing Investments

Inflows into metallurgical industries stood at US$ 10,841.32 million during April 2000-June 2018. During the same period, FDI inflows in the mining, diamond and gold ornaments and coal production sectors stood at US$ 2,318.79 million, US$ 1,146.83 million and US$ 27.73 million respectively.

Industry Challenges

Difficulty in land acquisition for green field projects is hindering the new steel projects like POSCO and Arcelor Mittal in India. Further, obtaining mining leases, approvals, transfer of title, etc. are still burdensome.
There are deficiencies in infrastructure to support the material movement in the two major iron ore producing states- Odisha and Jharkhand. Railways have reduced the daily allocation of rakes leading to stocks at mines heads jumping to nearly 100 mt.
The majority of India’s reserves of key metallic and non-metallic remains unexplored. Only 13 per cent of the 575,000 sq. km with geographical potential has been explored due to minimal exploration budget. Moreover, the mineral production has been impacted by mine closures in places like Goa due to regulatory affairs.
Cheaper steel from neighboring nations like China, Korea and Russia have been dumped in Indian ports. This makes domestic steel companies less competitive.
The steel industry in India has been on average operating at about 60 per cent capacity utilization level. This is due to the easy availability of cheaper imported steels and reduced operating margins.

Regulatory Trends

Under the Union-Budget 2018-19, the Government added a surcharge of 10 per cent on aggregate duties of customs on imported goods to strengthen the domestic industry.
The Mines and Minerals Development and Regulation Act of 1957, was amended in 2015 for the promotion and development of the mining industry in India. Auction was made the sole method for the allotment of mineral concessions and establishment of District Mineral Foundation was made mandatory.
Union Minister of Coal, Railways, Finance and Corporation Affairs launched a mobile application ‘khan Prahari’ and Coal Mine Surveillance and Management System developed by CMPDI.
100 per cent FDI is allowed in the mining and exploration of metal and non-metal ores under the Automatic route.
The GOI has announced to give a Star Rating Award to the mining leases if they put efforts towards the implementation of Sustainable Development Framework. The main aim of this award is to encourage mining lease holder to strive for excellence and have a built in compliance mechanism for environment protection and forest safeguards.

Other Key Market Trends

Odisha was the leading producer of minerals in FY18 followed by Rajasthan, Chhattisgarh, Karnataka and Maharashtra with production of mineral worth US$ 3.12 billion, US$ 1.17 billion, US$ 1.42 billion, US$ 1.27 billion, US$0.19 billion and US$ 1.17 billion.
The primary user for aluminium segment in India continues to be electrical and electronics sector, followed by the automotive, transportation, building, construction, packaging, consumer durables, etc.
Coal India Ltd. has ambitious plans of using GPS/GPRS based vehicle tracking system to enhance productivity. It also has services such as E-Auction, E-Procurement of goods and services.

Market Size and Forecast

The Gross Value added (GVA) of the mining and quarrying industry reached US$ 58.14 billion in 2017-18, growing at CAGR of 6.21 per cent between 2011-12 and 2017-18. It stood US$ 28.16 billion between April-September 2018.
The mineral production has grown at a CAGR of 5.72 per cent between 2013-14 and 2017-18E to touch US$ 17.62 billion in 2017-18.
The number of operative mines has increased from 1,508 in 2016-17 to 1,531 in 2017-18.
The production of metallic minerals and non-metallic minerals increased to US$ 8.23 billion and US$ 1.20 billion respectively.
The iron production increased to 200.96 million tonnes in FY18 from 129.32 million tonnes in FY15.
The crude steel production increased 4.5 per cent y-o-y to 102.34 MT in 2017-18 and reached 8.17 million metric tonnes in July 2018.
During FY10-18, India’s exports of iron and steel increased at a CAGR of 12.07 per cent. In 2017-18, India’s iron and steel exports were worth US$ 11.24 billion.
India’s iron and steel imports grew at a CAGR of 2.13 per cent to touch US$ 10.43 billion in FY18.
India’s coal production rose at a CAGR of 4.19 per cent between FY08 and FY18 to reach 688.78 million tonnes.
The aluminium production increased to 0.65 million tonnes from 0.58 million tonnes at a growth rate of 12.5 per cent between April-July 2018.
The production of aluminium stood at 3.4 million tonnes during 2017-18 and is estimated to increase to 3.42 million tonnes in 2018-19.

Market Outlook

The Ministry of Steel aims to increase the steel production capacity to 300 million tonnes from 134.6 million tonnes in 2017-18 to 300 million tonnes by 2030-31.
By March 2019, 105 mineral blocks are expected to be auctioned.
The iron production is expected to grow at the rate of 5 per cent in FY19.
India’s steel demand is expected to grow at 5.5 per cent in 2018 to 92 million tonnes and 6 per cent in 2019 to reach 97.5 million tonnes.
The consumption of aluminium grew to 2.08 million tonnes in 2017-18 and is forecasted to touch 5.30 million tonnes by 2020-21.
The index of mineral production increased 7.5 per cent month-on-month to 115.5. The mining group under the Index of Industrial Production grew 2.3 per cent in 2017-18. Further, the growth of the mining classification increased from -0.4 per cent in February 2018 to 2.8 per cent in March 2018.

Technology Roadmap

Artificial Intelligence

The use of artificial intelligence in mining operations from the exploration stage to processing will help not only improve safety at mines but also simplify the operations. AI can make predictions and provide recommendations on exploration by using data inputs such as drilling reports and geological surveys. Further, the use of Machine Learning in production stage will help to predict failure and facilitate repairs.

Block Chain

Block chain technology is used in mining industry to accelerate supply chain process. The world’s no.1 diamond producer De Beers used block chain to track gemstones through out the value chain which means from the miner to buyer. Block chain is also used to ensure that the material are not from conflict zones and are natural.

Drones

Drones will be used in the mining industry to enhance safety by ensuring areas are cleared before blasting, increased efficiency and cost savings. Drones improve road safety at sites by monitoring traffic and road conditions. Further, drones are used in gathering information like measuring stockpiles and reviewing compliance against mine plans.

Competitive Factors

According to the BP Statistical Review of World Energy 2018, India is the 3rd largest producer of coal.
India has the 5th largest estimated coal reserves in the world.
According to USGS Mineral Commodity Summaries 2018, India ranks 4th globally in terms of iron ore production.
India has nearly 8 per cent of the world’s deposits of iron core.
India retained its spot as the third largest crude steel producer in 2017.
India has the 7th largest bauxite reserves of around 2,908.85 million tonnes in FY17.
India has immense mineral potential with mining leases granted for longer duration of 20 to 30 years.
India has a fair advantage in cost of production and conversion costs in steel and alumina.
India produces 95 minerals- 4 fuel related minerals, 10 metallic minerals, 23 non-metallic minerals, 3 atomic minerals and 55 minor minerals.
India’s strategic location enables convenient exports to developed as well as the rapidly developing Asian markets.

Key Market Players

The key players in Indian metals and mining industry are as follows:

National Mineral Development Corporation (NMDC)

NMDC was incorporated in 1958 as a Government of India fully owned public enterprise. The company is under the administrative control of the Ministry of Steel.

The company is involved in the exploration of wide range of minerals such as iron ore, copper, limestone, dolomite, diamond, tin, beach sands, etc. NMDC is the single largest producer of iron ores. The company has four operating mines and 5,382 employees.

Hindalco Industries Ltd.

It is the metals flagship company of the Aditya Birla Group and an industry leader in aluminium and copper. It is not only the Asia’s biggest producer of primary aluminium, but also the world’s largest aluminium rolling company. It operates 51 units in 13 countries with workforce of 35,000. The company has also been given Star Trading House status in India.

Coal India Ltd.

It was incorporated in November 1975, as a state-owned coal mining corporation. It is the world’s largest coal producers and produces nearly 84 per cent of India’s overall coal production. Currently, the company is managing 116 ongoing mining projects.

Strategic Conclusion

There are significant opportunities for new mining capacities in iron core, bauxite and coal. The mining and metal industry is supported by the rise in infrastructure development and automotive production.

Power and cement industries are also boosting the growth in the metals and mining sector. The GOI has allowed 100 per cent FDI in the mining sector which will help to propel growth in the sector.

Appendix

CAGR – Compound Annual Growth Rate
FDI – Foreign Direct Investment
FY – Fiscal Year
GOI – Government of India
GPRS – General Packet Radio Service
GPS – Global Positioning System
GVA – Gross Value Added
MMT – Million Metric Tonnes
MT – Metric Tonnes
MTPA – Metric Tonnes Per Annum
TWh – Terawatt-hour
Y-o-Y – Year on Year