Poor demand, higher scrap import hit iron ore lump rates

Sadananda Mohapatra / Bhubaneswar Jul 05, 2012,
Business Standard
Falling pellet prices on poor demand and higher scrap imports have put pressure on iron ore lump prices in the country.

Iron ore miners have cut prices in the range of Rs 300 to Rs 400 per tonne for different grades of sized ore. Now, high grade lumps with 65 per cent iron content are offered at Rs 8,650 per tonne, while lump ore with 63 per cent iron content is sold at Rs 8, 050 a tonne, sources said.

"The cut in lump prices comes on the back of a recent slide in iron ore fine prices, following poor buying interest from China. Pellet makers in India have restricted fines procurement, anticipating a drop in domestic demand, especially from the real estate sector due to the ongoing monsoon season,” said an official of a large iron ore mining company on condition of anonymity.

Iron ore lump is primarily used by sponge iron makers and steel plants having no captive mines. Rates of iron ore lump and pellets generally move in tandem, as pellets are considered alternative to lumpy ores.

Imported iron ore fines prices for the 62 grade ore at China ports have slipped by more than 10 per cent to $133 per tonne in the past two months on slower demand. In India, fines rates at main hub Barbil, Odisha, have dropped to Rs 2,500 per tonne, against Rs 2,900 per tonne quoted a couple of months ago. Similarly, pellet makers have also slashed rates by Rs 1,000 to Rs 8,000 per tonne, citing poor demand from the domestic steel industry.

Apart from local use, India exports nearly two-third of its iron ore production. However, the exports suffered a huge setback this year as the Central government slapped a whopping 30 per cent export duty on it, up from five per cent a year ago, to preserve the mineral for domestic steel manufacturers.

Though fines exports from Goa is still continuing, Odisha miners found it difficult to export the mineral, citing lower profit margin. According to data from official sources, exports from Odisha halved to 12.9 million tonne (mt) in 2011-12 from 24.12 mt in the previous year.

"Goa miners have the advantage of port proximity, which we do not have. Higher transportation cost, coupled with higher export duty, has made it difficult for us to export. Nearly 44 mt fines are stacked at the Barbil-Joda region due to poor export demand, affecting the prices,” the mining company official quoted earlier said.

The Barbil-Joda region in Keonjhar district is the highest iron ore producing region of the country with an annual output of more than 40 mt high grade fines and sized ores. Odisha is the largest producer of iron ore lump in the country, supplying the raw material to steel plants in West Bengal, Bihar, Madhya Pradesh, Rajasthan, Delhi and Punjab.

Besides the falling pellet demand and prices, higher scrap imports have affected the sponge iron demand, having a cascading effect on the lump demand and prices, said some miners.

During the April-May period, finished steel imports jumped 69 per cent compared with the corresponding period in 2011. In the same period, import of steel scrap, which is used as a replacement for sponge iron in steel making, rose to 114,000 tonnes, up from 64,120 tonnes imported a year ago.

However, the steel makers are not satisfied with the price cut.

"The miners have no other option but to slash rates as there is no demand these days due to overall uncertainty in the economy and monsoon season when construction activities slow down. The price cut is aimed at creating buying interest but that is not going to help the steel makers who are operating on very low margins,” said P L Kandoi, president of All Odisha Steel Federation.