Odisha steel units balk at high iron ore linkage prices by OMC

The linkage prices are almost on par with the iron ore sold by OMC through e-auctions

Steel industries in the state, especially the ones without captive iron ore assets, are peeved with the steep prices of iron ore offered by the state controlled Odisha Mining Corporation (OMC) through long-term linkage.

The linkage prices are almost at par with the iron ore sold by OMC through e-auctions. The aggrieved steel companies have asked for a pricing concession, seeking 20 per cent discount on price of iron ore supplied by OMC via long-term linkage. Since the state based steel units are contributing to the economy by way of value addition and employment generation, the price concession is justified, they reasoned.

Rising prices of iron ore and coking coal, the two key ingredients in steel manufacturing, have eroded the margins of steel firms. And, the continuing high prices by OMC have further hit their operations.

“Steel units without captive iron ore sources are dependent on merchant miners and OMC for iron ore supplies. Though OMC has policies on pre-emption and long-term linkage of iron ore, they need modification to suit the end-user industries. The steel industries have been requesting for some kind of discounting mechanism in pricing under long-term linkage over the weighted average e-auction price for OMC”, said a senior executive of a steel company sourcing iron ore from OMC.

At the last round of price revision done by OMC (valid till June 7, 2017), price of iron ore lumps were in the band of Rs 2,200-2,700 per tonne. The bid price for fines ranged from Rs 1,100-1,500 a tonne. Price for long-term linkage was mostly at the same level or tad lower depending on the grade of iron ore offered.
 

In Odisha, Essar Steel, Visa Steel, Jindal Steel & Power Ltd (JSPL), Bhushan Steel Ltd and MMTC promoted Neelachal Ispat Nigam Ltd (NINL) are amongst the steel industries buying iron ore from OMC through long-term linkage.
 

Tata Steel is also examining the possibility of clinching a long-term pact with OMC to secure iron ore for its Kalinganagar plant. On a trial basis, the steel maker has signed an agreement with OMC valid for one year. But, lack of flexibility by OMC to cut long-term linkage prices is largely holding back Tata Steel from signing a long-term agreement, said a company source.

OMC has refused to budge from its pricing stand, ignoring concerns flagged off by steel makers. R Vineel Krishna, managing director, OMC did not respond to phone calls.

Though OMC has drawn a roadmap for higher iron ore output targets and agreed to augment production at its mines, the results have not yet shown up at the ground level. OMC had set a target to achieve a production figure of 20 million tonne (mt) by 2017-18 but it looks challenging given OMC’s current actual annual production hovering around six mt.