More Australian dirt propaganda exposed

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A few weeks ago from the Office of the Chief Economist at the Department of Industry which feeds its iron ore forecasts directly into the Budget:

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India is projected to transition from being a net exporter of iron ore in 2014 to importing 46 million tonnes of iron ore in 2021. While India has significant reserves of iron ore—estimated at 8.1 billion tonnes at 64 per cent iron content—the high cost of production coupled with output caps in the key producing regions of Karnataka, Odisha and Goa mean that it is unlikely that India will be able to produce sufficient quantities of iron ore to meet demand from its growing steel industry.

While India is projected to become a significant source of growth in seaborne iron ore demand over the medium term, this may not eventuate if government mining restrictions are lifted or export duties are reduced. In addition, the Indian Government may introduce policies to ensure that it is self-sufficient in iron ore. Finally, there is some uncertainty around the projections for India’s steel production, which determines the level of domestic demand.

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And today:

India is facing an imminent glut in iron-ore with production forecast at 180-million tonnes for the 2016/17 financial year and a current carryover stockpile of 140-million tonnes.

The increase in stockpiles came despite a 63% drop in imports during 2015/16, to 5.6-million tonnes, with miners forecasting a glut in the months ahead.

Final figures of current stocks were yet to be collated but data from the Federation of Indian Mineral Industries (FIMI) shows that stocks climbed to 140-million tonnes at the end of March, from around 128-million tonnes in the previous corresponding period, across the major producing provinces of Odisha, Jharkhand, Goa and Karnataka.

According to the FIMI, an estimated 85-million tonnes of the total stockpile were low-grade fines that were not finding any takers among domestic raw material consumers.

To make matters worse, the FIMI noted that dispatches from mines in Odisha were failing to take off since the local government charged the same rate of royalty for all grades of iron-ore, making it unviable for consumers to lift low-grade ores.

The existing stockpile and glut in the market was expected to worsen since the production cap at mines in Odisha – set by the Environmental Ministry – ran up to 80-million tonnes for 2016/17, but were still operating at 50% capacity.

The FIMI maintained that, with mines in Odisha still having headroom to ramp up production in the coming months, and with a slowdown in mine dispatches, the oversupply situation would get worse in the current year.

The FIMI had also flayed the Odisha government for continuing with its policy that half of the iron-ore production should be earmarked for steel mills located within the province, even though the aggregate average offtake by the latter did not exceed 20-million tonnes, causing local miners to get saddled with rising stock volumes.

In the medium term, Indian iron-ore production was forecast to hit the 200-million-tonne mark by 2020 for the first time since 2010/11.

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Not only is there an Indian glut right now, and it’s going to grow as far as the eye can see, the surplus ore is going to wind up on the seaborne market and very likely in China, ensuring the current price spike fades quickly, as opposed to growing forever:

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The Ministry of Bananas (Office of the Chief Economist at the Department of Industry) should be disbanded like BREE before it, not used as the key input for the Budget.

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.