Iron ore prices expected to fall 10-15% after ops resume at Donimalai mine

Karnataka miners are expecting iron ore prices to fall by around 10-15 per cent with the iron ore supply likely to resume from NMDC's Donimalai mine. 

Mining at Donimalai is set to resume after the Ministry of Mines amended the Minerals (Mining by Government Companies) Rules 2015. Under the new rules, mining leases of state-owned companies will be renewed automatically without going through the auction process.

NMDC, was embroiled legal battle with Karnataka government over Donimalai mine in the state after the local government decided to levy a premium of 80 per cent on the sale value of the mineral, extracted from Donimalai mine. Mining operations at Donimalai lay suspended since November 2018. The company is now waiting for a clearance from the state government to resume operations.

Steel industry in Karnataka imported around 6 million tonnes of iron ore during 2018-19 due to a shortage and 

availability of poor quality ore, according to a steel maker.

Seshagiri Rao, Joint MD, JSW Steel and Group CFO said, "The restoration of the iron ore supply from this mine will enhance the availability that would benefit iron ore-starved Sponge iron/pellet/steel plants in Karnataka.

Steel makers are happy that the resumption of mining at the Donimalai mine would bring down the price by around 10-15 per cent, said a senior representative from the mining industry.

Basant Poddar, former Chairman and member of FIMI (South), added,"The real estate and automobile sectors are in a 

bad shape at present. Prices of iron ore in Karnataka as likley to head south due the export ban that is still in place. Also, the secondary steel sector is in doldrums. The other major macro factors that will push down the prices are the slow down in the steel sector and the slowdown in the economy.

After a robust 7.5-8 per cent growth in the last two fiscals, the domestic steel industry is expected to witness a mid-cycle slowdown to 4-5 per cent this fiscal, according to credit rating agency Crisil. The agency has attributed the slowdown to muted construction investment and a weak automotive market.

Global steel prices have declined 13 per cent in the first eight months of 2019 due to weak demand, unseasonal jump in global inventory levels--up by about 35 per cent through August--and trade tensions. This was despite a whopping 56 per cent run-up in global iron ore prices during the same period, shrinking margins for producers.