Iron in the Indian soul

Iron in the Indian soul

23rd July 2006

This week's Indian update casts a critical - and unapologetically alarmist - eye over recent "developments" in the country's iron/steel sector.

In Orissa alone, the state government has signed no less than 43 memoranda of understanding (MOUs), lining up nearly US$3 billion worth of projects with a capacity of more than 58 million tonnes iron ore - a majority of which is likely to be exported.

Although the neighbouring state of Chhattisgarh claims it will use its own rich iron ore reserves for domestic "value adding"only, this seems a thoroughly unrealisic prospect. The majority of the deposits lie in the Baster region which over many months has been at the centre of an horrendous and bloody conflict between Naxalities (Maoists) and the state, in which both sides have committed atrocities.

Judging by several statements, the Naxalite leadership justifies its war "for" (but often "upon") the indigenous (Adivasi) communities in the region as affording "protection" of their mineral deposits from exploitation.

We lead off this round-up with an analysis, published last week in the influential Financial Express, pointing out that the iron ore "rush" is prompted not so much by India's internal growth requirements, but by steel manufacturers looking for cheap raw materials to feed both offshore and onshore plants.

Says the Financial Express: "[D]omestic demand will have to rise to over 13% every year from today to 2020 to be able to absorb the new capacity planned. " If all the deals now on the table go through, the country's iron ore could be exhausted in just fifty years.

That's less (by a decade) than the period over which India's poor were supposed to benefit from industrialisation as promised by Pandit Nehru on the nation coming to independence in 1947.

It's clearly impossible for all the projects now on the drawing board to make it to the production stage. But this fact alone will not save thousands of indigenous, dalit and other peoples from further incursions onto their land.

And it will inevitably foment increased resistance, leading to brutalities such as that suffered by protestors against Tata Steel's steel plant construction at Kalinganmagar, last January.

In the meantime, all manner of exploiters have entered what is effectively a three-cornered ring: huge overseas companies, such as Mittal-Arcelor and Posco - and now the UK-Dutch firm Corus, vying with Indian state enterprises (such as SAIL); and smaller outfits often illegally plundering deposits, and establishing rogue sponge iron smelters, while politicians are accused of taking bribes (eg. in Karnataka).

As if this wasn't enough, both Tata and Jindal - India's most prominent steel manufactures - have now embarked on missions abroad, to feed their appetities. Tata recently proposed a US$3 billion deal to the government of Bangladesh which would involve, not only setting up steel plants (probably sourced by iron from India) and power stations but also buying up the country's coal reserves at a price that opposition politicians and others have damned as derisory. (Thanks largely to such protests the Bangladesh government has now postponed signing an agreement with Tata).

Jindal has also just secured access to one of Latin America's most important iron ore deposits at Mutun in Bolivia. Virtually all this will be exported, despite Bolivian president Evo Morales' earlier pledge to "nationalise" the country's mines.

Central to the steel industry's global ploys are moves made by Mittal-Arcelor, by far the most important player in the sector. The company now possesses enough economic clout to bid for smaller companies (as it did when acquiring Luxemburg's Arcelor a few weeks back).

In a few years time, we may wake up to discover that less than half a dozen companies own virtually all the iron on this planet, with Mittal firmly leading the conquest.

Ironically, this prospect doesn't seem to worry some Indians. In the fond - but mistaken - belief that L N Mittal is a true citizen of the nation (in fact he lives in the UK and his company is registered in Rotterdam) they have taken him to their heart.

Now, despite the damage he has done elsewhere, and accusations of corruption currently dogging him in Liberia, he is going straight to the heartland of the country he quit in order to exploit greener (often literally) fields abroad.

[Commentary by Nostromo Research, London July 23 2006.]