India Eyes Domestic Iron Ore Price Falls

Guest commentator TC Malhotra contributes to MetalMiner from New Delhi.

While weather may support global iron ore prices, the Indian steel industry expects a fall in domestic iron ore prices after the government’s recent move to increase the duty on iron ore exports, as NMDC plans to finalize local prices of iron ore for the January-March period, according to a Business Standard article.

It is understood that the state-controlled miner may cut prices of iron ore fines marginally in line with global rates; however, the domestic steel industry still awaits an official announcement.

By The Numbers

NMDC had raised the price of powdery iron ore fines by 17 percent to Rs 3,380 ($67.60) per metric ton and high-grade lumps by 11 percent to Rs 4,270 ($85.40) a ton for the October-December quarter.

The state-run company supplies 90 percent of its output to local steel mills. Available figures suggest that NMDC’s output in the first eight months of the fiscal year through March jumped by 27.5 percent from a year earlier to 18.1 million tons.

In 2010-11, the total iron ore output in India was estimated at 208 million metric tons. With estimated exports of 97.7 million tons, the total availability for domestic steel mills remained at 110 million tons. The Joint Plant Committee (JPC), under the Indian steel minister, has recently projected the total crude steel output to be at 69.6 million tons in the year.

According to the Federation of Indian Mineral Industries (FIMI), the overall iron ore demand in the country stands at 103 million tons, which includes captive consumption by steel mills. The overall surplus last year stood at 80.3 million tons.

But the output of iron ore is likely to decline this year due to mine closures in the three leading producing states — Karnataka, Goa and Orissa. According to Fitch Rating, the country would add 30 million tons of new steel capacity in 2012-13, taking the overall requirement of iron ore to over 160 million tons by next year.

In the global market, current prices of ore have been in the range of $110 to 135 a metric ton, while domestic prices are at $67 per ton, according to the Business Standard article.

If iron ore prices come down in the domestic market, the move will give maximum benefit to the steel makers in Karnataka, Goa and Orissa because these three states are facing an acute shortage of iron ore due to local reasons. While Karnataka and Goa are facing raw material shortages due to ban imposed on illegal mining, Orissa has different problems, like the raw material distribution policy.

Lock It In, Lock It In!

Another report published in Business Standard states that steel companies in Orissa have demanded a Vedanta-like agreement for ore supply at a regulated price.

The report quoted Tara Prasad Patnaik, member of the All Odisha Steel Federation (AOSF) and managing director of Patnaik Steels and Alloys Ltd., as saying that the state government has several options to supply iron ore to steel companies. One of them could be making [a] similar agreement” to the one it has made with Vedanta.

According to Business Standard, to supply bauxite ores for Vedanta’s aluminum refinery at Lanjigarh, Orissa Mining Corporation (OMC) has formed a joint venture with Sterlite Industries, its Indian subsidiary. The JV will provide raw material from Niyamagiri Hills to the aluminum-producing unit at a rate that includes only excavation cost and royalty.

–TC Malhotra

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