Drop in iron prices brings cheer to steel companies

28 May 2015

Steel companies without captive iron supplies have a reason to cheer. Domestic iron ore prices are expected to slide in the coming months, with improved supply from Odisha and Karnataka, apart from higher production by NMDC.

Government-owned NMDC will be raising its output by 31 per cent to 46 million tonnes this financial year, as two new mines with seven mt capacity each will be contributing.

“We are hoping that with the increased NMDC supply, ore prices will reduce in the coming months,” Seshagiri Rao, joint managing director and group chief financial officer at JSW Steel, had said early this month.

Local ore prices have not kept pace with the sharp fall in global ones, down 29 per cent since January to around $50 a tonne. In India, with less availability, prices have been stickier. NMDC, though, the country's biggest iron ore miner, cut prices by 20 per cent in mid-April.

Mumbai-based JSW is heavily dependent on e-auctioned iron ore, as it does not have any captive source to feed its 10-mt steel plant at Ballari (former Bellary) in Karnataka, a high-grade ore producing state. Supply from this state is now likely to go up. The government there had recently extended the leases of mines where these had expired. Once these begin to produce, they should add 2.5 mt of ore to the market this year.

At present, 23 mines in the private sector and two mining leases of NMDC are producing around 20 mt of ore a year in Karnataka. The annual requirement, however, is about 35 mt.

And, in Odisha, as many as 29 non-captive iron ore mines recently had their lease validity extended. In the year ended March, the state had seen a sharp decline in iron ore production to 47.4 mt, the lowest in 10 years, due to closure of key mines after the Supreme Court order of May 2014. Output was even lower than the cap decided by the state for ore at 57 mt.

“Iron ore production from non-captive mines for the current financial year is yet to be worked out and will take at least a month,” Deepak Kumar Mohanty, director of mines in the state government had told Business Standard. “About 50 per cent of the non-captive production will be directed towards local end-use. The balance can be sold by these miners to whosoever they want.\"

Separately, state-run Odisha Mining Corporation had seen the government approve an amendment to the long-term linkage policy for supply of iron and chrome ore to local end-use industries. Under the modified policy, the quantity of iron ore to be offered under long-term linkage has been stepped up from 50 per cent to 70 per cent of its salable stock.

“Due to modification in the long-term linkage policy, more iron ore will be available for state-based end-use plants and the chunk towards e-auctioned ore will reduce to 30 per cent from 50 per cent earlier,” said Mohanty. “How this alteration in supply will impact domestic prices will have to be watched. A clear impact of this supply channelising will be visible only in the next three to six months.”


In a recent estimate by Citigroup, iron ore prices in the global market are likely to fall further, on the back of peaking consumption of steel in China, which will reduce the long-run price forecast for the raw material. From 2016 to 2018, prices might average $40 a tonne, it said.

Iron ore lost 36 per cent in 2014 as Rio Tinto Group and BHP Billiton in Australia and Brazil’s Vale SA expanded low-cost output to boost supply and cut costs, spurring a glut as China slowed.