Steel makers uneasy over iron ore price surge as steel prices soften

The domestic prices of iron ore, excluding the rates prevailing in Karnataka, have jumped by 17 per cent for fines and 11 per cent for lumps up to July in the current fiscal in contrast to 5 per cent slide in steel (TMT bar) prices in the same period.

With the ongoing monsoon impacting construction activities and global trade war threatening to create a glut in the domestic market, the steel industry is keeping its fingers crossed on further increase in the domestic iron ore prices which may impact their margins.

The iron ore prices have rebounded after seeing a minor correction in April and May this year. In July 2018, the price of iron fines has gone up from Rs 2100 to Rs 2400 per tonne which has an individual impact of Rs 400 per tonne on steel making.

Iron ore lump prices went up from Rs 4925 to Rs 5175 per tonne in the month. On y-o-y basis, the iron ore fines rate has surged by 113 per cent (from Rs 1125 to Rs 2400/tonne) and the lump price has increased by 97 per cent (from Rs 2625 to Rs 5175 per tonne).

In four months from April 2018 and July 2018, prices of iron ore lumps surged by 10.58 per cent from Rs4725 to Rs 5225 per tonne and fines by 17 per cent from Rs 2050 to Rs 2400 per tonne.

In contrast, faced with muted demand growth, steel prices reduced from Rs 41000 per tonne at Rs.39000 per tonne, a fall of 5 per cent, in the same period.

The price rise in iron ore has outpaced the increase in steel price over the last one year. Between July 2017 and December 2017, steel prices in Eastern India had gone up by 21% from Rs 29,200 to Rs.35,600 per tonne.

Even the state-owned companies like Odisha Mining Corporation (OMC) and National Mineral Development Corporation (NMDC) have raised the prices of lumps major raw material for blast furnace and sponge iron plants. OMC raised prices of 62 per cent lumps by more than 58 per cent from Rs 2700 per tonne to Rs 4280 per tonne during July 2017 to December.

What has helped the miners to consistently raise iron ore price over the last one year is the sustained demand from the steel industry and ensuing gap in supply of this key raw material.