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NMDC likely to raise iron ore prices by 70%

Abhineet Kumar  |  Mumbai 

Plans an increase in prices for both domestic and export markets.

Government-owned NMDC, India’s largest iron ore producer, plans an increase in prices for both domestic and export markets following the world’s largest producer, Vale, signing a three-month contract with Japan’s Sumitomo Metal Industries at a 90 per cent rise in rates.

Sumitomo, Japan’s third-biggest steel maker, agreed today to pay Brazilian Vale $100 to $110 a tonne for the three months starting April 1.

“We are now expecting a 70 per cent rise in iron ore prices for both domestic and export markets,” said S Thiagarajan, director, finance, of the Hyderabad-based company, speaking to the newspaper.

NMDC had earlier expected a 30 per cent price increase in prices of domestic ores, which constitute 85 per cent of its total sales. It exports the other 15 per cent.

Currently the company has contracts for iron ore fines at $43 a tonne for domestic steel producers, which may now go up to $73 a tonne. For export, its current contract for iron ore fines are at $61 a tonne, which would go up to $103 per tonne.

“This is certainly higher than what we were planning earlier, but still we are keeping a watch on how the Chinese steel makers react to the price negotiations,” Thiagarajan said. The company is also planning short-term contracts instead of those for a year at a time.

NMDC’s stock today gained 3.4 per cent to Rs 294.6 a share on the Bombay Stock Exchange. High iron ore prices would result in record profit for the company. “Market dynamics has to be played,” said Giriraj Daga, an analyst with Khandwala Securities, a Mumbai-based brokerage, talking about NMDC following the price increase by international companies.

“The cost is not going to move, so if they maintain the price hike for the entire year, then there would be significant jump in profit,” said Daga.

He estimates 80 to 100 per cent increase in profit after tax if the price increase is sustained in the next financial year. The company reported profit after tax of Rs 2,381.5 crore for the nine months ending December 31. The revenue for the nine months was Rs 4,255 crore. The company is going to announce the full year’s results next month.

Higher iron ore price would also put pressure on companies such as Steel Authority of India, JSW Steel and Essar Steel, who largely depend on NMDC for the supply of raw material.

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First Published: Wed, March 31 2010. 01:21 IST