Steel units in Odisha resent high pricing of OMC’s iron ore

20 February 2017

Steel and other end-use industries in Odisha have taken exception to the stubbornly high pricing of iron ore for the long-term linkage customers. Pointing to the faulty method of price discovery, the state-based units have sought relief from the steep prices in the form of concession in pricing.

Industries sourcing iron ore via e-auctions organised by the state-controlled Odisha Mining Corporation (OMC) have complained that the price determination for long-term linkage customers is based on the discovered price through e-auctions by OMC. They have alleged that the discovered price at auctions is unsustainably high and it needs to be eased.

At the latest round of e-auctions conducted by OMC on February 3, prices of iron ore lumps were in the band of Rs 2,000-2,200 per tonne. Iron ore fines prices varied from Rs 1,400-1,600 a tonne. Steel makers like Jindal Steel & Power Ltd and Visa Steel are among the key buyers of iron ore from OMC. Even Tata Steel has participated at a few OMC auctions to feed the increasing requirement of its Kalinga Nagar steel plant. It is also contemplating procuring iron ore from OMC through long-term linkage.

Purushottam Kandoi, president of All Odisha Steel Federation, said, “The state government is dragging its feet on the issue. Despite several rounds of meetings, no decision has been taken yet to arrive at the right method of price discovery at OMC’s e-auctions. The price is determined based on Indian Bureau of Mines’ (IBM’s) price, which is faulty and unrealistic. As a result, the end-user industries are suffering. Iron ore prices should be determined at auctions on the basis of demand and supply.”

He said that the state-based steel units, especially the ones lacking captive mines, sorely need a concession in pricing to stay competitive.

Uneconomical transport operations in the state are also contributing to the escalating iron ore prices. To add to the woes of the end-users, the prevailing embargo on day-time movement of iron ore is encouraging the local transport mafia to dictate mineral freight rates. Ore transportation via rail is also not feasible due to short distance of the destination.

Some players have suggested that the OMC needs to ramp up its iron ore production and keep to the mandated environment clearance limits. This would help cool iron ore prices as more ore would be made available.

The bulk buyers under long-term linkage have flagged concerns on logistics issues, including availability of rakes close to the railway sidings of OMC.

Besides, the weighted average price adopted by OMC is higher than the market price and this needs to be sorted out by OMC.

“OMC’s floor price at iron ore e-auctions is based on the pricing mechanism adopted by the IBM which is faulty. Pricing mechanism has to be made more realistic and transparent,” said a senior official with a steel company

Though OMC has drawn a road-map for higher iron ore output targets and agreed to augment production at its mines, the results have not yet shown up at the ground level. OMC had set a target to achieve a production figure of 20 million tonnes (Mt) by 2017-18 but it looks challenging given OMC’s current actual annual production hovering around 6 Mt.

Source – BS