NMDC: No respite in near-term

Realisations under pressure, volumes continue to decline; trend unlikely to reverse: Analysts

Weak steel prices and low demand continue to put pressure on the iron-ore prices. As a result, NMDC is not only facing challenges on the realisation front, but volumes are under pressure, too. These events will continue to keep the NMDC stock under check in the near term. The stock, which had fallen from the highs of Rs 187.55 in September 2014 to Rs 113.30 in June 2015, continues to trade near its lows, closing at Rs 115.30 on Monday. In the backdrop, any buzz on divestment of stake by the government can put further pressure on the stock.

The company has resorted to price cuts. The per-tonne prices of iron-ore fines and lumps were reduced by Rs 300 and Rs 100, to Rs 1,660 and Rs 2,950, respectively. These are significantly lower than the company’s realisations at the start of the year. The per-tonne price of iron-ore lumps, which stood at Rs 4,200 in January, has seen regular cuts to Rs 3,750, Rs 3,250 and Rs 3,050 during February, March and April. The price of fines, too, are down by 30 per cent since January.

 

A key reason for the price cuts is that the international price of iron-ore has continued moving south since July 2014. The 62 per cent Fe grade iron–ore price, which was close to $100 a tonne in July 2014, has halved to $50 a tonne in March 2015. Though since March 2015 the international iron-ore prices have shown some upside with 62 per cent Fe grade iron-ore having moved close to $53-55 a tonne levels, analysts remain cautious. Goutam Chakraborty at Emkay Global says, “Iron ore price movement has been positive for the past couple of months. However, if steel capacity gets curtailed to some extent in China or utilisations moderate, we believe that would put pressure on iron ore prices again.”



On the volume front, despite price cuts, the situation has not improved. For the quarter ended June, NMDC’s sales volumes at 6.65 million tonnes were lower than the 8.59 million tonnes in the year-ago quarter.

The government’s recent decision to renew iron-ore supply pacts with Japan and South Korea under the free trade agreement is also not being looked at in a positive light. The company will have to export the produce at lower international prices and will not be able to benefit much on profitability, taking into consideration the high 30 per cent export duty and freight costs, say analysts.