Rising ore prices to hit small steel companies

Spot iron ore prices, which have firmed up over the last 6-8 weeks, is expected to hit small, unintegrated steel players.

Analysts at domestic brokerage houses feel that domestic ore prices are toeing the international line. International spot rates of iron ore are currently pegged at $ 50-52 per tonne as with compared with $45 per tonne in the first week of January.

The prices were estimated at about $42 per tonne in September-October 2005, add analysts. For a mid-sized steel player, iron ore contributes to 20 per cent of the total raw material costs.

As a result, the steel industry is pitching for curbing ore exports from the country. However, industry experts feel that the government would not help in capping exports.

Integrated players such as Tata Steel and SAIL will not be affected by higher iron ore prices, given their captive supplies of this input.

The country's iron ore reserves are estimated at 22 billion tonne, most of which have a rich iron content of 65 per cent. However, about half of these reserves cannot be tapped, as the they are located in environmentally sensitive areas. The strengthening of iron ore prices has come at a time when long term iron ore contracts are up for renewal.

A year earlier, key suppliers from Australia and Brazil had hiked long term contract prices by 71.5 per cent. National Mineral Development Corporation, which accounts for a seventh of domestic iron ore production, expects its output to double to 45 million tonne by 2020.

Amongst private players, the largest exporter is Sesa Goa, who would benefit if these contracts prices are raised in the next fortnight.

A key factor that has contributed to this rise in spot iron prices, has been strong demand emanating from the Chinese steel industry. Demand for iron ore in China has grown by more than 25 per cent over the past 6-8 months owing to the current ramp up in Chinese steel making capacity.

It is estimated that India will export about 85 million tonne of iron ore this fiscal, with China accounting for about 70 per cent of the share. India's exports of iron ore in the previous year stood at 76 million tonne.

Meanwhile, a partial cushion for unintegrated Indian steel players from rising input costs, is that finished steel prices have also shown an upward trend.

Hot rolled coil (HRC) prices are currently hovering at $450 -470 per tonne as compared with $400 per tonne in the beginning of 2006, say analysts.