NMDC doubles iron ore export prices

Following the biggest global supplier, Vale SA, the National Mineral Development Corporation (NMDC), Asia’s third-largest iron ore miner, doubled its prices for the Japanese and South Korean mills, including Nippon Steel and Posco, and switched to quarterly contracts.

NMDC, which sold about 15 per cent of its output overseas last year, will export fines with 63 per cent iron content at about $122 a tonne, free-on-board this quarter, Finance Director Swaminathan Thiagarajan said in an interview. Talks with overseas buyers ended last week and prices for local sales may be increased by the middle of next month, he said.

Iron-ore miners are seeking to capitalize on spot- prices, which more than doubled in the past year. Vale broke a 40-year system of negotiating annual key contracts in March, when it agreed on new quarterly prices with Japanese buyers. BHP Billiton, the world’s largest miner, has also switched to quarterly pricing.

“The rise in iron-ore prices was expected and most of the increase has been factored in NMDC’s share price,” said Giriraj Daga, an analyst with an “avoid” rating on the stock at Khandwala Securities in Mumbai. “I expect up to a 90 per cent increase in prices for the local mills.”

NMDC shares rose as much as 7.1 per cent to Rs 284.80 and traded at Rs 284.10 at 10:49 am in Mumbai. The Bombay Stock Exchange’s Sensex rose 0.3 per cent.

Price Lock
More iron-ore is shipped across oceans than any other dry bulk commodity, and the market is forecast by Credit Suisse to total 1 billion tonnes this year.

Most sales were based on an annual benchmark price until this year, when, the largest miners switched to sales based on quarterly contracts and single cargoes. The use of derivatives is forecast to grow as buyers and sellers try to lock in prices.

“We may opt for a derivatives-based pricing mechanism,” Thiagarajan said. “It will be difficult to reach out to customers and negotiate prices on a quarterly basis.”

According to an earlier statement by Thiagarajan, the company had raised prices of iron-ore fines for local mills by 35 per cent to Rs 2,600 ($59). NMDC’s output is likely to increase more than 23 per cent to 37 million tonnes from December, after it starts operating a new mine in Bailadila in the eastern state of Chhattisgarh, Thiagarajan said today.

The company, which plans to lift production to 50 million tonnes by 2015-end, is in the process of building the 11B Bailadila mine and will start production by December. The annual capacity of the mine will be 7 million tonnes, Thiagarajan said.