India's largest steelmaker JSW Steel has been forced to cut production by a third due to iron ore shortages in the area of Karnataka. The iron ore prices have skyrocketed up as a result of the shortage, making it too expensive for the steelmaker to buy the iron ore. JSW Steel is considering shutting down operations, even as “more than 70 sponge iron units in Bellary have shut shop already, leaving around 200,000 people jobless,” according to The Economic Times. The auto and construction industries are receiving the backlash of these higher iron ore prices. As steelmakers cut output, carmakers are receiving fewer supplies from steel mills, with some saying about 40% less supply.

The article said the shortage was due to “The Supreme Court in July ordered suspension of iron ore mining in Karnataka following a submission by a court-appointed panel on illegal mining in the region.”

"It's a mess now," says JSW vice chairman Sajjan Jindal. "There's no iron ore, prices of those that are available are too high. The suspension (of mining) should have been done separately and in a phased manner. Bringing all mining districts under the ban has led to this acute shortage," he added.

In turn, prices for the iron ore have increased because the Karnataka government held auctions for the 25 million tons of iron ore, which rewards the highest bidder the valuable commodity. While steel mills cannot afford the ores, “It has also thrown sponge iron mills in disarray. Sponge iron units, or secondary steel mills, make about 5 million tonnes a year -- almost half of what JSW makes in a year - and are the lifeline for industrial furnaces and automobile and construction industries,” according to the article.

The exorbitant prices of iron ore have led to stockpiles of unsold low grade iron ores because the sponge iron mills cannot afford the prices.

Source: The Economic Times