23 JUL, 2012, MEERA MOHANTY, ET BUREAU
NEW DELHI: Steel makers dependent on iron ore from National Mineral Development Corporation (NMDC) are crying foul about the state miner's continued price increases even as international prices have thawed considerably.
A tighter credit situation and slowing of Chinese steel production, which dictates global trends in the iron ore market, have dragged prices down from their high of $187.67 for a tonne of ore to $146.52 a tonne in June, a decline of about 22% for landed price in China.
NMDC's clients fear that they may yet be paying more in the coming quarter, as NMDC refuses to link its rates to Platts Index, the international iron ore benchmark. "In the current environment of sluggish market conditions, increase in iron ore prices in the domestic market, contrary to global trends, indicates the pricing power of iron ore producers in India. It adds to the woes of domestic steel industry," rued MVS Seshagiri Rao, joint MD and Group CFO at JSW Steel.
The NMDC board is to meet soon to decide on July-September iron ore prices. "We are yet to decide on the new prices. But we have a well worked pricing mechanism approved by the board, that takes into account both internal and external developments," said NMDC's acting chairman, C S Verma, who also heads Steel Authority of India (SAIL), India's largest steelmaker. SAIL, though, has its own captive iron ore mines.
Rejecting a pricing formula linked to the Platts index that it followed for the first two quarters of last fiscal, NMDC has now adopted a mechanism to arrive at prices that are linked to the domestic scenario. Under the earlier 'netback' system, ore was priced by subtracting rail freight, export duty, port charges, royalty and other export commissions from benchmark international prices.
NMDC had argued that the netback mechanism was no longer viable when export duty was raised to 30%, given that freight costs are also steep.
This move left some of its clients, particularly those such as Rashtriya Ispat Nigam Lt, Essar Steel, JSW and Welspun, with no captive supply of the raw material, vulnerable to the unique Indian situation. The almost year-long ban on mining in Karnataka, and movement restrictions and other regulatory interventions in Odisha have led to a considerable shortage of supplies. It is only NMDC, already hugely profitable, that stands to benefit by abandoning this 'netback' mechanism, its customers said.
"Prices of iron ore have already softened internationally by $20 from April to now. In India, as well, the prices are softening and it is inevitable it will come down further," says Dilip Oommen, MD & CEO, Essar Steel.
The steel ministry, however, insists that domestic iron ore, given all parameters, isn't comparable. "We don't interfere as much in any other item as we do in iron ore. There are duties, and higher railway freight for exports, that is very peculiar to India. The situation in Karnataka has created a domestic market that is not in sync with international markets and sticking to the Platt's index would only cause losses to the company (NMDC)," said a senior steel ministry official.
Steel producers also point out that NMDC is exporting ore to Japanese Steel Mills at prices that benchmarked against international rates. And a netback approach, applicable to those prices, makes fines sold to them 40% and lumps 90% costlier. Those exports, however, says the ministry is not a company decision but a strategic decision. The ministry's has asked the Joint Plant Committee to work out a pricing mechanism for NMDC.
NEW DELHI: Steel makers dependent on iron ore from National Mineral Development Corporation (NMDC) are crying foul about the state miner's continued price increases even as international prices have thawed considerably.
A tighter credit situation and slowing of Chinese steel production, which dictates global trends in the iron ore market, have dragged prices down from their high of $187.67 for a tonne of ore to $146.52 a tonne in June, a decline of about 22% for landed price in China.
NMDC's clients fear that they may yet be paying more in the coming quarter, as NMDC refuses to link its rates to Platts Index, the international iron ore benchmark. "In the current environment of sluggish market conditions, increase in iron ore prices in the domestic market, contrary to global trends, indicates the pricing power of iron ore producers in India. It adds to the woes of domestic steel industry," rued MVS Seshagiri Rao, joint MD and Group CFO at JSW Steel.
The NMDC board is to meet soon to decide on July-September iron ore prices. "We are yet to decide on the new prices. But we have a well worked pricing mechanism approved by the board, that takes into account both internal and external developments," said NMDC's acting chairman, C S Verma, who also heads Steel Authority of India (SAIL), India's largest steelmaker. SAIL, though, has its own captive iron ore mines.
Rejecting a pricing formula linked to the Platts index that it followed for the first two quarters of last fiscal, NMDC has now adopted a mechanism to arrive at prices that are linked to the domestic scenario. Under the earlier 'netback' system, ore was priced by subtracting rail freight, export duty, port charges, royalty and other export commissions from benchmark international prices.
NMDC had argued that the netback mechanism was no longer viable when export duty was raised to 30%, given that freight costs are also steep.
This move left some of its clients, particularly those such as Rashtriya Ispat Nigam Lt, Essar Steel, JSW and Welspun, with no captive supply of the raw material, vulnerable to the unique Indian situation. The almost year-long ban on mining in Karnataka, and movement restrictions and other regulatory interventions in Odisha have led to a considerable shortage of supplies. It is only NMDC, already hugely profitable, that stands to benefit by abandoning this 'netback' mechanism, its customers said.
"Prices of iron ore have already softened internationally by $20 from April to now. In India, as well, the prices are softening and it is inevitable it will come down further," says Dilip Oommen, MD & CEO, Essar Steel.
The steel ministry, however, insists that domestic iron ore, given all parameters, isn't comparable. "We don't interfere as much in any other item as we do in iron ore. There are duties, and higher railway freight for exports, that is very peculiar to India. The situation in Karnataka has created a domestic market that is not in sync with international markets and sticking to the Platt's index would only cause losses to the company (NMDC)," said a senior steel ministry official.
Steel producers also point out that NMDC is exporting ore to Japanese Steel Mills at prices that benchmarked against international rates. And a netback approach, applicable to those prices, makes fines sold to them 40% and lumps 90% costlier. Those exports, however, says the ministry is not a company decision but a strategic decision. The ministry's has asked the Joint Plant Committee to work out a pricing mechanism for NMDC.
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