23 AUG, 2012, MEERA MOHANTY, ET BUREAU
NEW DELHI: An increase in iron ore prices by NMDC, India's single largest iron ore producer, defying global price trends has steelmakers in a tizzy.
Most of India's steelmakers without captive mines depend on state-run NMDC for iron ore. The iron ore miner increased contract prices for the July-September quarter by 8-13%, cashing in on an artificial shortage created by regulatory issues.
International prices of iron ore have meanwhile been falling sharply. From $149 a tonne in April (62% grade iron ore fines), fines at China now cost $108 a tonne.
"International prices in a seeming free fall are expected to decline further or stabilize as China is expected to cut steel production. This is an opportunistic strategy that maybe slightly difficult for steelmakers to digest given that domestic demand is more or less lacklustre," says Goutam Chakraborty, analyst at Emkay Global Financial Services.
On an average, iron ore accounts for 25% of steelmaking cost.
"It's distressing to see ore prices rising in India when international prices are softening, steel demand declining and the steel prices falling. Iron ore companies are taking full advantage of scarcity in the market. The steel companies have to operate without gas, coal, iron ore and infrastructure and still produce the most strategic product required for the economy.
This, even as imports from countries with free trade agreement with India, as well as of secondary products of poorer quality, is growing. What a paradox!" rues Seshagiri Rao, Joint MD and Group CFO, JSW.
Steelmakers with plants situated on the West Coast, namely Essar Steel and Welspun, and state-owned RINL are the other major clients of NMDC. Steelmakers have been campaigning for NMDC to link its prices to the international benchmark for iron ore, the Platts Index.
But NMDC is reluctant to do so, official acknowledge that regulatory issues have created a domestic market out of sync with international market, but defend NMDC's right to benefit from this. NMDC, new pricing mechanism in April, this year is based on demand-supply, instead of the earlier model based on export parity.
"Certainly in today's market we can probably import iron ore lumps that is cheaper. All I can say at this stage that it's hard to predict anything NMDC will do henceforth," says Dilip Oommen, MD & CEO, Essar Steel.
Essar, which buys ore from NMDC's Bailadila mines in Chattisgarh, is already dealing with disruption in supply since Naxals damaged the pipeline last year. "This just hurt us more and with iron ore prices crashing internationally we may be forced to look at alternatives in Odisha or import, which has already begun," says Oomen.
NMDC did not respond to ET's queries.
The 13% increase in NMDC premium product for direct use in blast furnaces, (direct reduction caliberated lump ore or DRCLO) is particularly frustrating says Welspun Maxsteel's president for Marketing and Raw Material, Prakash Tatia.
"This is certainly going to kill the industry. We had been pleading with the Ministry and the NMDC to announce the prices at least before in time, and just presumed in our professional wisdom that it would be in tandem with international rates."
NEW DELHI: An increase in iron ore prices by NMDC, India's single largest iron ore producer, defying global price trends has steelmakers in a tizzy.
Most of India's steelmakers without captive mines depend on state-run NMDC for iron ore. The iron ore miner increased contract prices for the July-September quarter by 8-13%, cashing in on an artificial shortage created by regulatory issues.
International prices of iron ore have meanwhile been falling sharply. From $149 a tonne in April (62% grade iron ore fines), fines at China now cost $108 a tonne.
"International prices in a seeming free fall are expected to decline further or stabilize as China is expected to cut steel production. This is an opportunistic strategy that maybe slightly difficult for steelmakers to digest given that domestic demand is more or less lacklustre," says Goutam Chakraborty, analyst at Emkay Global Financial Services.
On an average, iron ore accounts for 25% of steelmaking cost.
"It's distressing to see ore prices rising in India when international prices are softening, steel demand declining and the steel prices falling. Iron ore companies are taking full advantage of scarcity in the market. The steel companies have to operate without gas, coal, iron ore and infrastructure and still produce the most strategic product required for the economy.
This, even as imports from countries with free trade agreement with India, as well as of secondary products of poorer quality, is growing. What a paradox!" rues Seshagiri Rao, Joint MD and Group CFO, JSW.
Steelmakers with plants situated on the West Coast, namely Essar Steel and Welspun, and state-owned RINL are the other major clients of NMDC. Steelmakers have been campaigning for NMDC to link its prices to the international benchmark for iron ore, the Platts Index.
But NMDC is reluctant to do so, official acknowledge that regulatory issues have created a domestic market out of sync with international market, but defend NMDC's right to benefit from this. NMDC, new pricing mechanism in April, this year is based on demand-supply, instead of the earlier model based on export parity.
"Certainly in today's market we can probably import iron ore lumps that is cheaper. All I can say at this stage that it's hard to predict anything NMDC will do henceforth," says Dilip Oommen, MD & CEO, Essar Steel.
Essar, which buys ore from NMDC's Bailadila mines in Chattisgarh, is already dealing with disruption in supply since Naxals damaged the pipeline last year. "This just hurt us more and with iron ore prices crashing internationally we may be forced to look at alternatives in Odisha or import, which has already begun," says Oomen.
NMDC did not respond to ET's queries.
The 13% increase in NMDC premium product for direct use in blast furnaces, (direct reduction caliberated lump ore or DRCLO) is particularly frustrating says Welspun Maxsteel's president for Marketing and Raw Material, Prakash Tatia.
"This is certainly going to kill the industry. We had been pleading with the Ministry and the NMDC to announce the prices at least before in time, and just presumed in our professional wisdom that it would be in tandem with international rates."
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