Iron ore: On upward trajectory

While the rising price of iron ore augurs well for NMDC, steel makers continue to bear the brunt.

For the fifth consecutive month, iron ore exports witnessed a decline in November — falling 30.59 per cent year-on-year (y-o-y) to 8.07 million tonnes (mt) — on the back of an export ban in Karnataka. While exports dipped 15.69 per cent to 54.58 mt between April and November, iron ore prices, which were hovering $110-120 a tonne, surged to $150 a tonne.

The Karnataka ban has impacted major players such as Sesa Goa. The Vedanta group company saw its stock plummet from Rs 376 in August on concerns over investment in unrelated assets (Cain India). It continued to dip in December on concerns over iron ore production. Sesa Goa has more than six mt per annum (mtpa) capacity in Karnataka, where it is only being able to sell in the spot market. The Goa assets, with 15 mtpa capacity, are contributing to exports.

Some respite, however, is expected from the improving price realisation on iron ore. During the second quarter, average realisation surged 43 per cent y-o-y to Rs 3,528 a tonne, due to a 56 per cent increase in spot prices. On the other hand, NMDC, with domestic steel players as customers, is benefiting from higher demand and firm prices iron ore. It increased prices by 90 per cent y-o-y to $120-135 a tonne in the first quarter and to $145 a tonne in the second quarter. Reports indicate that a three per cent rise may come during the next week’s pricing review.

But the good news for NMDC may be bad for steel prices. With spiralling iron ore costs, domestic steel makers will be forced to increase prices. Steel companies are contemplating a price rise of Rs 1,100-1,200 a tonne.