Govt. mulls cap on iron ore prices to aid steel makers, but miners worried

27 Mar 2017

There are indications that the government may place a ceiling on iron prices within a month, as part of the government’s efforts to aid the domestic steel industry, to arrest the surge in imports and help local producers realise better prices and margins.The likely move, however, has got the iron ore industry worried.

Iron ore miners say that a cap will severely dent the budding revival signs in the industry that has been plagued by plunging exports.There is a fierce price battle between Indian and Australian miners and that has led to steep discounts, especially in the low-grade market.

For ore with iron content below 58 percent, Indian miners have been forced to give discounts of as much as 40 percent to compete with Australian ores, which are being offered at a 25 percent discount for similar grades.

Sources told Moneycontrol that the steel ministry is working on a plan to cut raw material costs by capping iron ore prices and making coking coal mines available under auction for steel metal.

In October 2016, Niti Aayog had pushed the case for a new and dynamic steel policy.A Niti Aayog report said that “seeing the current situation of the steel sector, it may be unlikely to achieve the targets envisaged in the National Steel Policy 2012 —  a capacity of 300 MT and production of 275 MT by 2025.”

The report also advocated independent regulators for both steel and mining sectors besides highlighting the need for keeping a check on supplies and price of iron ore.

The steel ministry has now taken a leaf out of Niti Aayog’s views and has mandated the government’s premier policy think tank to devise formulations so that iron ore prices can be brought down.

Iron miners say such a move will adversely affect the mining industry, potentially derailing the recent revival. “Steel is sold at the market price and there is protection from imports of steel. Why is the government trying to subsidise the steel industry”? a leading iron ore miner said, requesting anonymity. “The cost of iron ore in steel production is only 15 percent”.

Iron ore prices (62 percent FE content) have collapsed from a high of USD 150 per metric tonne in January 2013 to merely USD 40 per metric tonne by December 2015 as steel industry in China slowed down but miners from countries like Brazil and Australia did not cut global supplies.

The price drop has been sharper for lower grades of iron ore. It is only in four months to January 2017 that prices have picked up steam and stabilized around USD 80 per metric tonne, although still nearly 50 percent lower from the peak seen in January 2013.

According to Federation of Indian Mineral Industries (FIMI), India’s exports slumped from a peak of 117 million tonnes in the year to March 2010 to 4.5 million tonnes last year.

“The government cannot come in the way of a market mechanism because there has to be a free market and market is determined by demand and supply. If supply is more, then there is no cause for steel ministry to fix the price,” RK Sharma, Secretary General of FIMI said.

“If you are fixing the iron price, which is a raw material for steel industry, you should also fix a reasonable price for steel, which is a raw material for downstream industries such as machine tools and some more products. Price of iron ore affects only few steelmakers, whereas price of steel affects millions of users,” Sharma said.

Shipments have climbed to 14.8 million tonnes in the eight months to November but this is still a very small proportion of the global seaborne market of about 1.4 billion tonnes.

A fierce price battle between Indian and Australian miners has also led to steep discounts, especially in the low grade market. For ore with iron content below 58 percent, Indian miners have been forced to give discounts of as much as 40 percent to compete with Australian ores, which are being offered at a 25 percent discount for similar grades.

Indian iron ore miners say the industry is severely crippled with high royalty, various state level taxes, high export duty, export restrictions and cap on production.

Any further restriction on iron ore pricing will be detrimental for the mining industry, they say.

Source – moneycontrol.com

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