Minerals and Metals Trading Corporation of India Ltd.

views updated

Minerals and Metals Trading Corporation of India Ltd.

SCOPE Complex Core 1
7, Institutional Area
Lodi Road, New Delhi-110 003
India
(11) 36 22 00
Fax: (11) 36 22 24

State-Owned Company
Incorporated: 1963
Employees: 3,825
Sales: Rs50.97 billion (US$2.81 billion)

The Minerals and Metals Trading Corporation of India Ltd. (MMTC) is India’s largest public sector trading body. Apart from overseeing the export of primary products such as coal and iron ore, and manufactured agricultural and industrial products, the MMTC also imports much-needed commodities such as ferrous and nonferrous metals for industry, and agricultural fertilizers.

The Indian subcontinent is endowed with a rich variety of natural mineral wealth. Although geological surveys were first conducted in the 1840s, when the Geological Survey of India—still the principal agency for mapping and exploration of minerals today—was created at the beginning of the 1990s, only 50% of India’s total land area had been explored for minerals.

India possesses ample coal and iron reserves, together with significant quantities of bauxite, gold, ilmenite, manganese ore, and mica. But production levels of cobalt, copper, graphite, lead, mercury, nickel, sulfur, petroleum, and zinc fall well short of domestic needs. Moreover, the exploration and removal of mineral resources such as iron ore and bauxite necessitate a high level of financial investment and technological expertise.

After independence in 1947, therefore, the government decided to leave the mining of scarce mineral resources to the public rather than private sector, although India’s National Mineral Policy clearly states that it does not “preclude the State from securing the co-operation of private enterprise in the larger interest of the State or with a view to accelerating the pace of development.”

Under the Constitution of India, mineral rights and administration of mining laws are vested in the state governments. Central government, however, regulates the development of minerals under the Mines and Minerals (Regulation) Act of 1957.

The MMTC has its origins in the 1950s, when, in an effort to boost agricultural and industrial development, the Indian government determined to earn valuable foreign currency through the export of canalized bulk mineral ores. Canalization is a process whereby only state companies may handle the import and export of certain products deemed essential to the country, and where the end user is invariably a state utility, factory, or some other government undertaking. It is not a process unique to India.

As a direct result of the government’s decision to try and earn larger amounts of foreign currency, the State Trading Corporation of India Ltd. was founded in 1956 under the Indian Companies Act, as a wholly owned government subsidiary, to manage the export and import of selected commodities.

However, the need for a specialized institution, which could handle the complexities of mining, transporting, and exporting large amounts of mineral ores, became increasingly apparent, and in 1963 the MMTC was created specifically to trade in minerals and metals and, in particular, iron ore, which it began to purchase from the government’s mining company, called the National Minerals Development Corporation, and other public- and private-sector mining companies. Its initial objectives were twofold: one, to ensure full employment of miners in less developed areas; and two, to oversee the importation and distribution of raw materials to agriculture and industry where production fell short of domestic requirements.

Gradually the MMTC diversified into new areas, over the years gaining responsibility for importing nonferrous metals, fertilizers, and fertilizer raw materials. But in 1963 the MMTC’s primary responsibility was to oversee iron ore export, formerly the responsibilty of the State Trading Corporation of India.

India is one of the few countries in the world that possesses sufficient quantities of high-quality iron ore both to meet its domestic needs and to export in large amounts. The subcontinent exports almost 60% of its iron ore production every year, and it has grown to become the country’s single largest currency earner. Japan is the major purchaser, and other importers include China, Czechoslovakia, Germany, Hungary, Iran, Kenya, Romania, South Korea, the United Arab Emirates, and Yugoslavia.

After iron ore in 1963, other minerals soon joined the MMTC fold: export of manganese in 1965, coal in 1971, mica in 1972, barytes in 1976, and chrome ore in 1978. For a short period between 1974 and 1975, at the insistence of the government of India, the MMTC also handled exports of ferromanganese, ferrosilicon and ferrochrome, before these were passed on to other agencies.

From 1970 onwards, the MMTC also assumed increasing responsibility for importing nonferrous metals like palladium (1970), platinum (1970), aluminum (1971), zinc (1971), lead (1971), nickel (1971), tin (1972), and copper (1972). But, as in the case of exports, the Indian government’s policy on canalization decreed that imports of certain other metals were channeled only intermittently through the MMTC. Examples include cobalt and mercury, between 1972 and 1976; zinc dust, between 1971 and 1976; and stainless steel, between 1970 and 1984. Aluminum was decanalized in 1990, and tin in 1991.

Although vast deposits of rock phosphate were recently discovered in Rajasthan, and since 1975 almost 50% of India’s requirement has been produced domestically, imports of raw materials for fertilizers, including rock phosphate and sulfur, have continued to be the MMTC’s responsibility since the mid-1960s. In 1970, imports of finished fertilizers from Eastern European countries began to be channeled through the MMTC and by the mid-1970s, all similar sources of finished fertilizers had followed this route. In February 1990, after intense discussion at government level, it was decided to channel imports of fertilizer intermediates such as ammonia and phosphoric acid through the MMTC.

The import of industrial raw materials such as antimony ore, high grade molybdenum and maganese ore, refractories and tungsten ore are no longer the responsibility of the MMTC, which gradually relinquished the task in the mid- to late-1970s, or 1982 in the case of antimony ore, in favor of private companies. The import of these materials continues to be regulated by the Ministry of Commerce under India’s strictly enforced Import and Export policy.

The mid-1980s proved to be a significant turning point in the history of the MMTC’s development. Until 1983, it had acted merely as a conduit for the import and export of key raw materials essential to the continued development of Indian agriculture and industry, but burgeoning trade deficits and increasing foreign exchange difficulties led to a need for substantially increased exports in order to earn desperately needed foreign currency.

As a direct result of the deepening balance-of-payments deficit, far-reaching strategic decisions were taken during 1983 and 1984 to turn the MMTC into a fully blown trading house. The principal strategic aim was to diversify away from the MMTC’S traditional concentration on the export and import of minerals and metals into new areas such as industrial products, agricultural products, diamonds, gems, and jewelry.

The launching of the government’s seventh Five Year Economic Development Plan in 1985 saw the MMTC developing into the country’s leading export house—a position it still holds—generating ever larger volumes of foreign exchange through its exports. To facilitate this process, the company adopted an increasing number of innovative strategies such as link deals, countertrade, and project exports. By the end of the 1980s, the MMTC’s stated intention was to be able to generate sufficient export earnings to offset almost completely its foreign exchange requirements for imported raw materials.

From its early days in the 1960s, the MMTC has grown rapidly to become India’s largest trading organization in the public sector. It now has trade links, in a wide range of commodities and products, with over 80 countries around the world and employs more than 3,500 people.

The MMTC’s capital base has expanded in line with the group’s overall expansion, partly through the issue of bonus shares, of which there have been seven over the years. From an initial government contribution of Rs30 million in 1991, the MMTC’s capital base stands at Rs500 million. As of March 31, 1991, the MMTC’s net worth was Rs3.42 billion, of which Rs500 million were share capital, and Rs2.92 billion were reserves.

From its first full year of operation in 1964-1965, the MMTC has displayed an impressive 75-fold increase in turnover from Rs680 million to Rs50.97 billion for 1989-1990. Most spectacular has been the increase in monies derived from the export of non-canalized agricultural and industrial products. Between the financial years 1984-1985, and 1989-1990 respectively, revenue rose from Rs200 million to Rs5.25 billion, boosting overall export figures from Rs3.76 billion to Rsll.48 billion for the same period. At the same time, imports grew from Rs23.89 billion to Rs39.15 billion, increasing total turnover from Rs27.75 billion to Rs50.97 billion.

Canalized materials—bauxite, coal, chrome ore, iron ore, and manganese ore—account for 58% of the MMTC’s exports. But the remainder consists of non-canalized exports, including other minerals, agricultural and industrial products, diamonds, gems, and jewelry, which are now the fastest-growing area in the MMTC’s overall trade profile.

The MMTC is governed by a board of directors headed by the chairman, S.K. Agrawal, assisted by five executive directors. There is also an ex-officio director who is chairman of the National Minerals Development Corporation. Trading operations within the MMTC are broken down into four distinct groups, each with its own responsibilities and acting as an individual profit center. The minerals group handles all minerals and mineral-based products, while the metals group looks after ferrous and nonferrous metals and industrial raw materials. The fertilizer group oversees finished fertilizers. The export trade group has the widest brief, covering industrial products; commodities; diamonds; gems and jewelry; agro-marine products; and countertrade, trading products without the use of currency.

Although the MMTC’s planning is centralized at its corporate office in New Delhi, the MMTC’s philosophy is that management should implement its decisions according to local conditions. Its regional offices at Barbil, Bombay, Calcutta, Cuttuck, Delhi, Goa, Madras, and Vizag have all been sited deliberately to take advantage of the close proximity of mines and ports and the needs of local industry. Overseas, the MMTC has offices in Tokyo, Japan; Seoul, Korea; and Bucharest, Romania, all dealing with iron ore exports, while an office in Amman in Jordan handles non-canalized exports.

The MMTC’s interests in the 1990s cover every part of India’s economy related to foreign trade. Its principal activities remain the export of primary and manufactured products, but also involve importing industrial commodities such as ferrous and nonferrous metals; fertilizers and fertilizer raw materials; third country trading, which involves importing a product from a foreign country and selling it to a third country at a profit without importing the commodity into the trading country; countertrade; acting as an agent and representative for domestic producers; domestic trade in bulk raw materials; providing insurance, shipping, financing, transportation and warehousing services for Indian exporters; and entering into joint ventures in mining, transportation, manufacturing, trading and the building of infrastructures.