NMDC continues wait for pricing power in iron ore

Ore major keeping domestic price lower than landed cost of import; falling rupee does not come to rescue as international ore prices have also softened

The rupee slide could result in a rise of the steel industry's import bill for key inputs, like coke. But, for now, it is unlikely to alter the equation for those depending on import of iron ore. The recent fall in iron ore prices in the international market has offset the slide in the rupee.

The domestic iron ore major, NMDC, is unlikely to take any benefit of the depreciating rupee by increasing the prices of the iron ore it sells in the domestic market. For the month of June, the company has kept its rates unchanged at Rs 2,600 a tonne of iron ore fines and Rs 4,600 a tonne of lumps. NMDC has been keeping the price of iron ore lower than the cost of import, despite huge demand for the steel raw material, compared to limited supply.

Lately, the steel industry has resorted to import but NMDC has started keeping prices competitive vis-a-vis import costs to ensure import does not take place in a big way. However, import cannot be avoided completely.

Over the last two months, the prices of iron ore in the international market have come down 15 per cent to $110 a tonne from $130 a tonne, thereby neutralising the effect of the rupee slide, analysts tracking the industry said.

"The correction in international prices has been offset by the rupee depreciation. Domestic prices have remained flat in the month of June, despite the fall in the rupee. There will not be any impact on the companies depending on imported iron ore," Chirag Shah, analyst with Barclays Research, said.

Overall, Indian steel industry is set to increase import of iron ore this year owing to shortage of raw material in the domestic market. It is estimated that steel companies would import five to seven million tonnes of iron ore during the current year, provided resumption of mining gets further delayed in Goa. Currently, mining in Goa is banned following Supreme Court directions.

"Considering international spot prices of iron ore have dropped to $110 a tonne from $130 a tonne a month ago, we do not have much opportunity to increase our prices in the domestic market. However, our board will take a decision in this regard next month," a top official of NMDC said on condition of anonymity.

When the rupee was ruling at Rs 55, ore prices internationally were Rs 6,875 a tonne for 63 per cent Fe grade. Now, with the rupee at 58 to the dollar, ore prices are ruling at Rs 6,380 a tonne, he said. If the rupee appreciates a little following the Reserve Bank of India intervention, the cost of import for steel companies will further come down, industry analysts added.

In the current scenario, the falling rupee will not have any major impact on the import of iron ore, considering global iron ore prices are unlikely to increase. In fact, prices have declined from a high of $175 a tonne to $110 at present. Though nobody is importing iron ore in big quantities, there will certainly be imports this year by some steel mills, said Ritesh Shah, lead analyst at Espirito Santo, a brokerage firm.

Steel companies like JSW Steel and Essar Steel are considering import of iron ore for their port-based steel plants. JSW Steel alone is set to import five million tonnes of the raw material to operate plants in Salem, Tamil Nadu and Dolvi, near Mumbai.