Hike in ore prices stifles pellet makers

Pellet makers who are operating at a third of their rated capacities, feel the hike will render operations unviable

The hike in prices of iron ore fines by Rs 200 per tonne by some merchant miners has thrown pellet makers into a tizzy.

Pellet manufacturers who are operating at barely a third of their rated capacities, feel the latest hike would compound worries for them and render operations unviable.

Prices of iron ore fines have been hiked by Rs 200 per tonne for 63 per cent Fe grade fines from Rs 1,650 to Rs 1,850. The hike would raise cost of pellet production from Rs 4,148 to Rs 4,372 a tonne, an increase of 5.4 per cent. Reeling under a spate of cheaper imports from China, pellet makers are forced to sell pellets at Rs 3700 per tonne, incurring heavy losses. The latest hike will only aggravate losses for the pellet makers.

Manish Kharbanda, executive director and group head (mines & minerals) at Jindal Steel & Power Ltd (JSPL) said, "Increase in prices of the iron ore fines by around Rs 200 by most of the merchant miners is a very unfortunate decision at a time when the steel industry is going through a very rough patch. The prices of the fines in Odisha are already high due to the current royalty rates being charged. These prices should have been decided in consultation with the industry and the Odisha government. Odisha is the only state in the country to be charging royalty on fines at par with lumps. The central government has already communicated that this practice being followed at Odisha is not as per the prevalent law."

He suggested that the end use plants may be provided ore under the pre-emption scheme on cost plus basis and any miner refusing to cooperate on this issue may be heavily penalized by law.

"Merchant miners also should be directed to produce and report their monthly achievements of production as per the EC (environment clearance) limit and any slippage should be heavily penalized. To overcome the present price crisis created by the merchant miners for personal gains against the interest of the overall industry and also against the interest of the people, the state government must act with firmness", Kharbanda said.

Against the nationwide installed capacity of 83 million tonne per annum (mtpa), pellet manufacturers were operating at barely 30-35 per cent of their rated capacity. Apart from high cost of iron ore fines, lukewarm demand for pellets in the domestic market had shrunk capacities of pellet plants.

Pellet, an intermediate product in steel making, competes with calibrated lump ore in the domestic market. But, steel makers preferred to buy lumps since they were available at a price of around Rs 3000 per tonne, cheaper than pellets.

According to N D Rao, president, Pellet Manufacturers' Association of India (PMAI), pellets have to be exported from the country as they were not in a position to compete with iron ore lumps.

"The Government of India needs to finetune its policies for exports by removing export duty and reducing railway freight for pellet transport. Today, only shore based pellet makers like KIOCL and Essar Steel are finding exports viable due to logistics advantage", he said.