NMDC to raise iron ore prices by 40-50%

National Mineral Development Corporation (NMDC) is planning to raise long-term contract prices of iron ore by 40-50 per cent, effective April 1, 2010. On January 1, the company had raised iron ore prices by Rs 270 per tonne across all grades, which works out to 6-15 per cent depending on the variety of iron content.

NMDC is negotiating with its domestic and overseas buyers in a bid to convince them to accept the hike, citing the significant rise in prices of the steel-making raw material in the spot market.

Talking on the sidelines of a media briefing in Mumbai, Chairman Rana Som said since NMDC’s long-term contracts were expiring on March 31, 2010, it had engaged overseas and local buyers in talks over the pricing issue.

“Even if a consensus is reached in June or July, the effective date of the price revision will be April 1, 2010,” Som said.

NMDC sells around 85 per cent of its high-grade iron ore annual output of 30 million tonnes in the domestic market. The remaining is sold to Japanese, Korean and a few favoured large Chinese steel mills.

The company sells over 92 per cent of iron ore under long-term contracts, largely to government-owned Steel Authority of India Ltd and Rashtriya Ispat Nigam Ltd, and large private steel mills, including Essar Steel.

The prices of India’s benchmark iron ore with 63.5 per cent iron content have risen sharply in the last one year and are currently between $134 and $135 per tonne C&F, as against approximately $90 per tonne C&F around same time last year. Spot iron ore prices at Chinese ports were around $134 per tonne, double the 2009 free-on-board contract.

Setting eyes on the domestic growth of infrastructure and the resulting steel consumption, Som said immense potential existed in India due to the government’s plan to increase steel production to 120 million tonnes by 2015 from the existing 60 million tonnes.

The lowest cost iron ore producer also sells iron ore to Chinese steel mills intermittently when spot prices shoots up sharply. The company’s cost of production stands at $7.6 per tonne at present.

NMDC, with reserves of 1.4 billion tonnes, is planning to expand production capacity to 50 million tonnes by 2014-15 in order to meet the rising domestic demand. It is also panning to adopt a new pricing mechanism with the new contracts which will be flexible and move in line with the spot price.

Steel Secretary Atul Chaturvedi said the per capita steel consumption in the country would continue to grow until it reached 620 kg from the existing 44 kg. “Hence, the demand is likely to move up unabatedly.”

Som ruled out a ban on iron ore exports, demanded by the domestic steel mills.