State-owned NMDC, the country’s largest iron ore producer, has intimated its customers about a 34-56 per cent rise in base prices, which would go up later more substantially, factoring in various price adjustments. The ‘provisional’ hike follows a 16 per cent increase in prices in January.
The increase is effective April 1 and the final prices would be communicated subsequently, to be made effective retrospectively, also from April 1.
The rise would be the highest for natural pellets, from Rs 3,258 to Rs 5,100 a tonne, an increase of 56 per cent. But, with price adjustment, the increase was likely to work out to 75 per cent. For iron ore fines, the increase is 34 per cent, to Rs 2,600 a tonne and for calibrated lump ore, 46 per cent, to Rs 3,800 a tonne.
NMDC’s long-term domestic pricing is based on the Ganesan committee’s recommendations, to calculate domestic prices by taking into consideration the percentage increase or decrease in international prices accepted by Japan for NMDC’s product and exchange variation on six-monthly forward rates on a yearly basis. The formula was being used since 2006-07.
NMDC’s contract with Japanese Steel Mills (JSM) is yet to be fixed and therefore the provisional increase.
Steelmakers apprehend that the final rates for domestic sales could increase by 90 per cent. Leading JSM have reached a deal with Vale of Brazil for the April-June months at $106 a tonne, an increase of 92 per cent. The move marked the end of a 40-year annual benchmarking system for prices.
NMDC supplies iron ore to most of the primary steel producers that do not have captive mines such as (in India) Essar Steel, Ispat Industries and JSW Steel. In addition, the entire requirement of Rashtriya Ispat Nigam Ltd. In January, it raised prices by 16 per cent. Steel producers said the move would make it difficult for them to forecast steel prices, as an incremental differential was likely to crop up once the final rates were decided by NMDC.
Moreover, there was speculation that NMDC might move to quarterly pricing, which could make steel prices volatile.
It had appointed consultants to rework its pricing strategy. A range of options are being considered, from shorter supply pacts to benchmarking to spot prices. Weighted spot and long-term prices could be considered or linked to steel prices.
Led by the raw material cost-push, steels producers had from April 1, increased prices by Rs 2,500 a tonne. Iron ore accounts for a third of the raw material cost. Coking coal, that accounts for half the cost, was set for a significant increase, with BHP and Japan’s JFE Holdings signing an agreement to supply it for three months at $200 a tonne, a 55 per cent increase over last year.