India iron ore prices defied global trends to surge 41 percent in FY18



Source: BUSINESS STANDARD

The prices of high-grade iron ore lumps, a key input in steel manufacturing, shot up 41.1 % year-on-year in FY18, belying international trends. Globally, benchmark prices of iron ore fines (62 Fe grade) inched up by only 1.7 % in last financial year to USD 69 per tonne.

An industry analyst said that “Domestic prices need not necessarily reflect international price movements and trends. Steel demand in the country remained robust for the most part of FY18 and this sustained higher ore prices. That apart, temporary suspension of a few iron ore mines in Odisha cut off supplies and triggered appreciation in iron ore prices towards Q4.”

The Supreme Court’s decree in a case of illegal mining in Odisha shunted seven operative iron ore mines, knocking off 23 million tonnes of annual capacity. The mines were shut as the leaseholders failed to meet the court-mandated December 31 deadline to fork out compensation for overproduction of ore between 2000-01 and 2010-11. Though the mines resumed operations two to three months later, the scenario triggered an artificial crisis, goading the largest producer, NMDC Ltd, to raise prices. A clutch of merchant miners in Odisha followed suit.

A report by CARE Ratings shows that domestic iron ore prices stood at INR 3,003 a tonne in April 2017. After recording sequential growth, prices sobered to INR 2,996 a tonne in August 2017. Thereafter, prices spiralled month-on-month between September 2017 and February 2018, save November when they fell marginally by 0.5 % to INR 3,256 a tonne. In February 2018, iron ore prices peaked at INR 4,056.

In contrast, international iron ore prices averaged higher during the first half of 2017-18 but softened in the second half. On an average, global prices were up 1.7 % y-o-y in 2017-18. According to a World Bank release in April 2018, international iron ore prices are expected to average USD 66.3 a tonne during calendar 2018 compared with USD 73.8 in 2017, denoting a slide of 10.2 % y-o-y.

Domestically, iron ore output scaled a decade high of 210 million tonnes in 2017-18. Production of steel, the largest consuming industry of iron ore, grew by 3.1 % to 105 million tonnes whereas consumption of the metal rose 7.9 % to 90.7 million tonnes.

In the current financial year, the country’s steel output is seen growing in the range of 6-8 per cent as an anticipated higher demand will fuel production. The report by CARE Ratings does not foresee much pressure from the raw material prices on the steel companies.

Source: BUSINESS STANDARD