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The steel sector has alleged a few iron ore miners have formed a cartel and raised ore prices. Are you trying to exploit the shortage?
The Supreme Court-fixed quantity for each mine is insignificant for any mining company to have the strength to dictate prices or think of cartelisation. Moreover, miners are fixing the reserve price after production has resumed, following clearances from the Supreme Court and approvals from the government. This allegation is astonishing, considering 70 per cent of the iron ore in e-auctions is being supplied by NMDC, a government company, and its reserve price is abysmally low compared to private miners.
From April 2013 to mid-January 2014, 12 million tonnes (mt) of new material have been sold. Of this, eight mt is from NMDC. This means 66 per cent of the ore is from a government company. In such an environment, how can there be cartelisation by the miners? Now, let's see the other side of the story. Who is buying this ore? Of the 12 mt sold this financial year, one steel company acquired 63 per cent; together, three companies bought 74 per cent of the total ore. So, if there is cartelisation, it is from the buyers' side, not by the miners.
Three-four steel companies buy about 75 per cent of iron ore from e-auctions in Karnataka. It is this dominance of a few buyers that has led them to abuse the system, leading to cartelisation. The cartel of steel companies, particularly for buying NMDC ore, has artificially kept the prices of iron ore low. The steel industry cartel, driven by steel majors, is engaged in forging alliances so that the market sentiment is low and private mining companies can be targeted.
Why is NMDC selling at such abysmal low prices?
I will not be able to cast aspersions. This is an opportunity loss for NMDC. It has the best of mines and doesn't produce 55 or 56 per cent Fe grade ore; it produces at least 60 per cent Fe grade, while the lumps are of 64 or 65 grades. The production cost does not vary according to grade. There is no reason why NMDC is selling at these low prices.
Why are miners selling at high rates now?
After the resumption of mining, the cost of producing iron ore has increased drastically. Mines were closed for three-four years and mining companies have incurred heavy losses. All the investments of mine owners have been lying idle; they had to borrow huge amounts from banks and pay interest. When the mines were started, with reduced production capacity, their cost per tonne increased. Also, mining companies had to incur huge expenditure in implementing resettlement and rehabilitation (R&R) plans.
This is when steel mills became uneasy. NMDC is under the steel ministry and could somehow convince the ministry to put in place an export duty. Everybody talked about value addition and a lot of companies invested in pellet-making. Now, even KIOCL (Kudremukh Iron Ore Company Ltd) has to pay export duty or reduce the price and sell in the domestic market. So, the days of cheap availability of iron ore are over.
There is a huge shortage of iron ore in Karnataka; only 18 mt a year is available. Aren't you trying to avail of the shortage and raise prices?
We are not raising prices. Miners are increasing production and volumes. Each miner has his own cost of production, depending on how much he has spent on R&R and developing his business. There is no restriction on the reserve price one can fix. Each miner has his own costs, depending on many parameters. However, market forces decide the final transaction cost.
Associations of steel producers have approached the Supreme Court, seeking a price regulator.
Let us see what happens in court. Let us not go by the hypothesis and see what the court decides. It is premature to say anything on this. We will study their argument and answer accordingly.
Sesa Sterlite had fixed the iron ore price at Rs 5,000 a tonne at the last e-auctions, but there were no takers. Will you consider lowering the price for the next auction?
We will consider the situation and decide. At this juncture, I cannot say whether I will reduce or increase. We are in a business, not charity.
Where does Sesa Sterlite's iron ore production stand, following the resumption of your mines?
Since the recommencement of mining on December 28, 2013, we have produced about 600,000 tonnes and will raise production in the coming days. It is difficult to say how much we are going to produce in the remaining days of this financial year. We are trying to return to the pre-closure capacity of 500,000 tonnes a month.
