Weak demand, heavy scrap import depress iron ore prices

In the global markets, iron ore of 62-grade has shed 14% in the past two months, to trade at $136 a tonne

Domestic iron ore prices, declining for a month, are likely to remain under pressure till June, say mining companies and industry analysts. NMDC, the major state-owned producer, has cut ore lump rates by seven per cent from this month. Odisha Mining Corporation has reduced rates of high-grade iron ore lumps by 5.6 per cent, to Rs 5,050 a tonne for this quarter. A couple of private mining companies in this state have also cut rates for high-grade ores.

“Iron ore lumps have poor demand these days. Our prime consumers, sponge iron makers, have curbed orders because steel makers are preferring imported scrap instead of sponge iron as raw material,” said an official of Rungta Sons. Due to huge availability of steel scrap from African and West Asian countries, amid falling prices, Indian steel makers have opted for this. According to an estimate by Metal Recycling Association of India, the country’s import of steel scrap in 2012-13 would be 7.5 million tonnes, up 25 per cent over a year. Scrap prices are down eight per cent to $390 a tonne in the past four months, despite the better demand.

Imported scrap is Rs 22,000 a tonne at western Indian ports. Prices of sponge iron, produced mainly in eastern India, are Rs 19,000-20,000 a tonne. Since procuring sponge iron from eastern India attracts additional transport costs, making it costlier by comparison, many southern and western Indian steel plants prefer using scrap.

As demand for steel products has also been weak in home markets, it has impacted iron ore rates, say analysts. “Due to the slowdown in the various steel consuming sectors such as construction, automobiles and capital goods, there has been a slowing in domestic demand. So, in spite of the mining ban which has led to a scarcity of the resource, unless there is a revival in the steel industry in the near term, which appears unlikely, iron ore prices are not likely to see any significant upside,” said Shankhadeep Mukherjee, analyst with Icra. “However, short-term triggers such as adverse weather conditions might lead to a temporary rally in global and local iron ore prices, which happened during the start of this year.”.

In global markets, iron ore of 62-grade has shed 14 per cent in the past two months, to trade at $136 a tonne.