NMDC, the central government-owned mining entity Ltd, cut its iron ore
prices by 8 to 9 per cent with immediate effect, due to excess supply and a slump in demand from Indian steel
producers. The price of ore lumps is now down 8.2 per cent to Rs 2,225 a tonne and of ore fines by 9.15 per cent to Rs 1,985 a tonne.
With the monsoon having spread, steel
demand is going to remain subdued for the next three months because of lack of work on construction and infrastructure projects. Another reason for the price cut is the oversupply of ore, following weak export viability and independent steel
mills participating directly in iron ore
“NMDC’s largest consumers are JSW Steel
and Essar Steel
in both Karnataka and Chhattisgarh. The iron ore
price cut would benefit these mills proportionately. Since Tata Steel
Authority of India have their own captive mines, with adequate capacity to support their production, they are unlikely to get any benefit,” said Goutam Chakraborty, an analyst at Emkay
Global Financial Services.
Adding: “Independent steel
mills have evinced interest in participating in mine auctions to secure raw material supply for the long term. So, dependence on merchant miners for iron ore
supply is likely to diminish, going forward. We, therefore, believe that ore prices would remain subdued, with more cuts possible in future, provided the price falls from the current level in global markets.
” NMDC’s price cut is the first revision since March 1, after raising these by Rs 100 a tonne across all categories. Global prices had fallen in June, with the benchmark iron ore
at $52 a tonne from a high of $63 a tonne in May, though they subsequently rose.
“Indian steel markets
started the year on a weak note, with muted demand (four per cent growth) due to lower offtake from the construction sector. Trade protection measures remain effective and have largely curtailed steel
dumping. The recent weakness in global steel
and raw material prices has led to a correction in Indian prices and will affect operating margins in the June quarter, especially due to high-cost coal inventories. The quarter aside, we expect earnings of steel
makers to gain from anti-dumping duties, falling raw material prices and an improving demand-supply equation in India,” said Abhishek Poddar, an analyst with Kotak Institutional Research, in a recent report.
The ore price cut is in line with a correction in steel
prices. Spot domestic hot-rolled coil prices are down by seven to 10 per cent since January, though rebar prices have increased. The decline in domestic prices reflects the fall in global prices, led by lower raw material costs and the passing of steel
restocking in China.