NMDC's price cut fails to cheer steel makers

Despite 11% reduction, NMDC's iron ore is 53% higher than the private miners in Odisha

The 11 per cent cut in iron ore prices for February, announced by the NMDC has not elated domestic steel makers.

They feel there is scope for further reduction. This is the first cut in three months. NMDC’s iron ore is still 53 per cent costlier than the material supplied by private miners at Odisha, who sell iron ore for Rs 1,800 per tonne.

NMDC, the country’s largest public sector iron ore producer, has reduced ore lump prices 11 per cent to Rs 3,750 a tonne and ore fines prices 10 per cent to Rs 2,760 a tonne.

However, after adding all taxes, freight and royalty, their material is almost at par with that of the landed cost of imported material. Imported ore is available at $64 a tonne (Rs 3,900, according to current exchange rates) on a cost-and-freight basis for 63.5 per cent ore, down $2 a tonne over the previous week.

On a year-on-year basis, prices in the international markets are down 48 per cent. compared to $122 a tonne in January 2014.

"The recent reduction of iron ore fines prices by NMDC by just 11 per cent are not in line with expectations. It is too little when compared to the drop in prices internationally (over 50 per cent from January 2014 to current levels). Further the price reduction by private miners in Odisha is much more than that of NMDC, which are down by 45 per cent to Rs 1,800 per tonne," H Shivramkrishnan, Chief Commercial Officer, Essar Steel India Ltd said.

Compared to landed cost of imported iron ore at Rs 4,450 per tonne, the domestic iron ore sold by NMDC costs between Rs 4,300 and Rs 4,500 per tonne after adding royalty, taxes and freight. "This means there is still large scope for NMDC to reduce their prices. Considering the fact that there is a muted demand for steel products in the country, the steel makers are not too impressed with the current reduction by NMDC," Prakash Duvvuri, head of research at OreTeam Research, a Delhi-based iron ore research firm said.

JSW Steel has demanded NMDC to reduce prices by at least Rs 1,000 per tonne. "There is no demand for steel in the domestic market. China and Russia are dumping steel and if we cannot match them it will be very difficult for us to operate in the current scenario. The steel industry will have to cut down production if NMDC does not reduce prices further," Vinod Nowal, Deputy Managing Director, JSW Steel said.

JSW Steel has already indicated that it would continue to import for the next fiscal as well. For the current fiscal, it has imported 9.3 million tonnes till end of January 2015.

"There is still big scope for NMDC to reduce their prices. They should sell Lumps at Rs 2,000 per tonne and Fines at Rs 1,600 per tonne. Because, we have to add royalty, taxes and freight before taking it to our plants. After adding all these, it works out to Rs 3,600 per tonne for steel mills," R K Goyal, Managing Director, Kalyani Steels Ltd said.

"Indian steel makers continue to be burdened by very high iron ore fines prices by NMDC. This coupled with cheaper and unfairly traded steel imports riding on the back of sharply declined iron ore prices is hurting Indian steel industry leading to depressed prices of steel and adversely impacting CAD and excise duty collections," Shivramkrishnan added.