MetalMiner welcomes guest contributor Rahul Jalan, a Chennai-based senior research analyst in metals for Beroe, Inc. who tracks the global steel and rare earths supply chain and analyzes global procurement developments to help develop procurement solutions for the company. Beroe specializes in providing procurement intelligence for a broad swath of industries, enabling buyers’ decision-making.
India’s Supreme Court also recently allowed the e-auction of 1.5 million tons of ore every month to 400,000 tons every Wednesday (from the already-mined 25 million tons) to the steel mills within Karnataka. Of the 25 million tons, around 15 million tons may be in the category of higher-grade with 60%+ Fe content and the remaining 10 million tons of lower-grade, which cannot be consumed by the domestic steel industry.
These iron ore auctions don’t seem to be helping the domestic steel industry, as the buyers are not happy with the fixation of the iron ore base price and the exploitation of buyers who desperately need ore. The base price is fixed based on the prevailing prices in China and Japan, excluding export duty and transportation costs to ports.
The base price at the first e-auction process for high-grade iron ore (63% Fe content) was set at INR 3,700 (US $82) per ton (as against the market price of INR 3,500 (US $72) per ton) and it fetched up to INR 5,800 per ton at the auction — an appreciation of about 50 percent. The base price for iron ore fines at the e-auction was set at INR 2,700 (US $56) per ton. The difference in the prices of high-grade iron ore to low-grade was at INR 1,470 (US $30) for a difference of 6 percent for every percent fall in Fe. However, the recently concluded e-auction process provided a discount of only INR 162 (US $3.37) for a 6.1 percent fall in Fe.
Moreover, the auctioned iron ore price is not inclusive of royalty and taxes. The steelmakers have to pay an additional cost of 10 percent royalty and 12 percent forest development tax (FDT) to the state government on the final auctioned price. The final landed cost of the auctioned iron ore has severely increased the raw material price.