NEW DELHI/BHUBANESWAR (Reuters) - The Supreme Court ordered on Friday the temporary closure of nearly half of the iron ore mines in top producing state Odisha due to non-renewal of years-old leases, in a blow to local steel mills that depend heavily on high-quality ore from the state.
Odisha, which allows exports of only half of total iron ore output, produced more than 70 million tonnes in the last fiscal year from 56 operating mines.
The move is unlikely to lift global iron ore prices given the limited flows from Odisha to international markets, but it could force Indian steelmakers to source the raw material overseas and soak up some of a forecast global supply surplus.
The 26 suspended mines produced about 40 million tonnes a year, said Odisha's mines director Deepak Kumar Mohanty.
"We will abide by the court's decision and work on renewing the licences for the affected mines within the stipulated six months," Mohanty told Reuters.
The verdict could force steelmakers to cut output or import expensive iron ore. Tata Steel Ltd (TISC.NS) and Jindal Steel and Power Ltd (JNSP.NS) are some of the companies that mine and use ore from Odisha. Most of the mining in Odisha is done by state-owned Odisha Mining Corp.
Tata Steel shares fell more than 4 percent on Friday. The company's executive director Koushik Chatterjee said on Wednesday its mines were operating with all necessary clearances.
"There's definitely potential for (iron ore) imports because it takes some high-grade tonnes out of the domestic market," said Graeme Train, commodity analyst at Macquarie in Shanghai.
To curb illegal mining, the top court had earlier imposed bans in Karnataka and Goa. The Goa ban imposed in September 2012, coupled with similar curbs enforced earlier in neighbouring Karnataka, have sliced India's iron ore exports by 85 percent, or 100 million tonnes, over the past two years.
Though the bans in Goa and Karnataka have now been lifted, output caps and procedural delays have meant iron ore production remains muted and India continues to be the tenth-largest exporter, down from its earlier No.3 position.
Analysts expect a gradual recovery in Indian iron ore exports over the next two years, but the pace is likely to be modest and far from a record high of more than 117 million tonnes set in the fiscal year through March 2010
For a grpahhic on India's iron ore output/exports click link.reuters.com/raz65v
The court judgment on Friday could also lead to higher imports of steel from countries such as South Korea and China. Steel imports have seen double-digit growth in recent years as local raw material shortages have hurt production.
That would go against the plans of opposition leader Narendra Modi, who is set to be the next prime minister of India. He wants to focus on exporting steel instead of iron ore.
An analyst said that as some 100 million tonnes of low-grade iron ore stocks were available in Odisha, impact of the mine suspension would be limited.
Indian steel companies have historically stayed away from low-grade iron ore as they had enough ore with iron content of more than 60 percent. But the recent bans have forced them to invest in plants that can use low-quality ores.
Steelmakers, including JSW Steel Ltd (JSTL.NS), Essar Steel, Prakash Industries (PRKI.NS), Monnet Ispat & Energy (MNET.NS), and Adhunik Metaliks (ADME.NS), have already set up plants capable of processing low-grade iron ore dug from the ground and usually exported to China.
Reporting by Krishna N Das and Jatindra Dash; Additional reporting by Manolo Serapio Jr. in Singapore; Editing by Mayank Bhardwaj and Tom Hogue