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Steel makers anxious as iron ore miners up prices over export demand

62 Fe grade iron ore prices rise by over 9% in 2 weeks as global prices climbed on China demand

Jayajit Dash  |  Bhubaneswar 

iron ore

Merchant in have hiked prices of 62 Fe grade prices by more than nine per cent within two weeks as international prices climbed on sustained demand from China. With benchmark prices of high-grade fines touching $80 per tonne, more material is getting diverted to export markets, leaving the domestic in a tight spot.

Between August 10 and 23 this year, fines prices have been hiked from Rs 1,300 to Rs 1425 a tonne, an increase of 9.6 per cent. Prices of lumps in the same period have also been raised by 9.8 per cent from Rs 2,550 to Rs 2,880 a tonne.

"When international prices reach the level of $80 per tonne, exports become very lucrative for the The same has happened for in as they are reaping good margins from exports. For steel plants without captive ores, this is a tough time as they have to pay more for buying ore," said a senior official with a steel company sourcing ore from the market.

price in China is trading at 47 per cent higher price than the low it struck two months back. Demand is especially buoyant for higher grade fines as a result of China's crackdown on its polluting industries, forcing its steel industries to opt for higher grade ore.

At its last e-auctions held on July 13, state-run Mining Corporation (OMC) had pegged prices of 62-64 Fe grade fines, sourced from its flagship Daitari mines, at Rs 1,600 per tonne.

"More than 75 per cent of the steel produced in India is from purchased with consequent dependence on merchant In the entire domestic market, pricing and supply of are concentrated in the hands of a few merchant Due to [an] absence of indexing or pricing mechanism, the downtrend in [the] international market is either not followed or the trend is just the reverse in the domestic market. This results in high raw material cost and consequently high cost of steel production," said the unnamed official.

Steel companies without captive deposits are feeling the heat due to a wide differential in price at which they source the raw material. While the ex-mines cost of fines for a steel plant with a captive mine is around Rs 500 per tonne, the same for a plant with no captive resource works out at Rs 1,400 per tonne.

Such steel plants without captive mines are burdened with high input costs as opposed to the ones with captive ores as they enjoy comparatively lower input cost, assured quality and optimised despatch. To help achieve a level playing field with their counterparts with captive resources, the steel plants have sought incentive either in the procurement of raw material or in the sale price of the finished product.

India's production surged by 22 per cent in the financial year (FY) 2016-17 to 194 million tonnes (mt) from 156 mt in FY16. Of the total production, steel industries consumed 126.67 mt and around 25 mt were exported. The rest 40 mt low-grade material got added to the mine heads.

First Published: Wed, August 23 2017. 23:55 IST