‘High’ NMDC Iron Ore Prices to Squeeze Steel Firms’ Profits

12 June 2017

The country’s largest iron ore miner NMDC’s decision to hold prices at ₹2,185 a tonne for the last four months is set to squeeze steel companies’ profit. In fact, international steel prices have come under pressure with iron ore prices in the global markets falling 34 per cent in last four months to $57 a tonne.

In India, steel companies have been trying unsuccessfully to pass on the incremental cost on iron ore and coking coal for the last two months. Some of the sponge iron and pellet manufacturers in the coastal region have started importing iron ore than buying it from NMDC.

ND Rao, President, Pellet Manufacturers Association, said the disparity in prices has made many pellet manufacturers on the West coast import about 0.70 million tonnes of iron ore in last three months and four more vessels carrying 50,000 tonnes of iron ore are expected this month.Moreover, when companies import iron ore they have to provide only the bank guarantee and make the payment after three months whereas in NMDC’s case payment has to be made on delivery, he said.

NMDC said it has bucked the international iron ore pricing trend as the demand in India has been strong despite mining operators ramping up supply. It feels import is not a threat as the domestic logistics cost will be a deterrent and is viable only at the coastal regions. Deependra Kashiva, Executive Director, Sponge Iron Manufacturers Association, said the arbitrary pricing mechanism of NMDC has hit the industry and capacity utilisation has already fallen to 75 per cent.

With no sign of revival in demand, steel companies have maintained prices at last month level of ₹34,000 a tonne, despite rising cost. Uncertainty over the impact of GST roll-out and expectation of slowdown in infrastructure activities with the onset of the South-West monsoon has hit demand, said a steel company official.

Incidentally, global steel prices have dropped sharply in recent times, mirroring the decrease in iron ore prices. The export price Hot Rolled Coil has dipped 14 per cent last month to $437 a tonne against $511 a tonne in February, due to muted global steel demand.

Source – The Hindu