Mineral sector on a high amid industrial slowdown

Contrary to the overall industrial slowdown witnessed in the country in the first quarter of the current financial year, the mining and mineral sector has done particularly well, riding on the sharp increase in the prices of minerals and higher volume of sales.

Even as high-input costs and rising interest rates pulled down the growth in the Index of Industrial Production to 5.23 per cent in the first quarter from 10.28 per cent in corresponding quarter last year, the aggregate net profit of five leading mining companies went up by 105.80 per cent to Rs 1803.65 crore from Rs 876.42 crore last year.

 

DIGGING DEEP

The aggregate net profit of five leading mining companies went up by 105.80 per cent to Rs 1803.65 crore in the first quarter from Rs 876.42 crore a year ago.

Both industry sources and analysts predict that the resource companies may not fare so well in the second quarter, owing to the Olympics restrictions and imposition of a 15 per cent export tax on iron ore, particularly iron ore fines.

Among major minerals, the prices of iron ore jumped by 40 per cent, manganese 200 per cent and chrome 110 per cent in the first quarter as compared to last year.

While the Gujarat Mineral Development Corporation reported a net profit of Rs 72.35 crore in Q1 as against Rs 65.24 crore last year, the same for Sesa Goa was Rs 644.72 crore (Rs 118.86 crore), National Mineral Development Corporation Rs 981.31 crore (Rs 625.77 crore) and Orissa Minerals Rs 81.67 crore (Rs 33.98 crore). Moreover, the operating margins of these firms went up from 64.69 per cent to 73.37 per cent in the period under consideration.

However, both industry sources and analysts predict that the resource companies may not have it so good in the second quarter, owing to the Olympics and imposition of a 15 per cent export tax on iron ore, particularly iron ore fines. But they feel the market would stabilise in the third quarter bringing in better price realisation and profit for the companies by the end of the financial year compared to the previous one.

Among major minerals, the prices of iron ore jumped by 40 per cent, manganese 200 per cent and chrome 110 per cent in the first quarter as compared to last year.

“The prices of major minerals such as iron ore, manganese and chrome spiralled in the first quarter fuelled by world demand, particularly increased buying by Chinese importers, who wanted to build up stocks in the run-up to the Olympics,” said S K Panda, general manager - technical, Orissa Mineral Development Corporation.

However, the decision of the Chinese government to close down some polluting metal processing units during the Olympics has cooled down demand from the country. Besides, imposition of a 15 per cent export duty on iron ore, which tops the list of minerals exported from the country, by the Indian government in the first week of June this year, has significantly impacted the export of iron ore to China, the biggest importer of the commodity from India.

Due to this adverse scenario, prices of iron ore fines, which had climbed up to Rs 2,800 per tonne in March-April, has come down by half to Rs 1,300 to Rs 1,400 per tonne now. However, sponge iron grade sized ore has maintained its price at about Rs 7,000 per tonne in the same time, mostly because of domestic demand, pointed out Santosh Sarangi, managing director of Orissa Mining Corporation.

But unlike iron ore fines, the downturn in the prices of other minerals such as manganese and chrome ore have been marginal, as compared to fines, the volume of consumption and export of these minerals are not large enough to impact prices in a big way, said Manas Daspattnaik, an analyst.