NMDC raises iron ore prices by up to 6.72%
4 January 2017
Government-owned miner NMDC Ltd has raised iron ore prices by up to 6.72 per cent in anticipation of an increase in steel prices.
With effect from Tuesday, NMDC raised the prices of iron ore fines by Rs 125-1,985 a tonne. Similarly, the prices of iron ore lumps have been hiked by Rs 125-2,225 a tonne.
In its last revision on November 29, the company had raised the prices of fines by Rs 100 a tonne but kept lumps prices unchanged.
“The current iron ore price rise is driven purely by a sharp increase in lifting by primary steel producers. Primary steel mills have raised their production capacity though the demand is very low. Since steel mills have already hinted at raising their products’ prices, NMDC is probably looking to have a pie in the steel price hike,” said Goutam Chakraborty, analyst (institutional research), Emkay Global Financial Services Ltd.
Industry sources say primary steel mills are planning to raise their products’ prices by Rs 3,000 a tonne despite a slow offtake by consumer industries.
The housing and construction sector, which accounts for around a third of the steel demand in India, is going through a tough phase.
Given the government’s focus on incentivising borrowing from banks for constructing houses, experts expect a rebound in steel consumption.
Meanwhile, the current situation in India is unfavourable for iron and steel as downstream producers are not doing capacity expansion. Sponge iron producers, according to trade sources, are not picking up raw materials in Odisha, resulting in inventories. Similarly, small- and medium-size sponge iron producers in Chhattisgarh have been operating on lower capacities. Hence, their requirement of raw materials including iron ore remains lower.
However, large steel mills have not only compensated for this but also raised their inventories. “NMDC might see sales of 10 million tonnes during the October-December quarter, the highest ever during the third quarter of any financial year,” an analyst said.
Meanwhile, global prices of iron ore remained stable at around $ 70 a tonne. Hence, more than the global factor, the surge in demand from primary steel producers caused NMDC to raise iron ore prices, said Chakraborty.An Emkay report said that despite the uncertainty on the demand outlook, global steel prices continued to surge in November, led by the cost push.
Meanwhile, China achieved its monthly capacity cut target in November. The reduction in steel import from China has provided some support to prices. Moreover, trade protection measures by various countries have restricted the movement of steel, adding to the pricing power of local producers.
According to the World Steel Association’s monthly crude steel output data, Chinese production has been robust and on a year-to-date basis it is marginally higher year-on-year. A continuation of this trend can be a challenge for global steel prices in the coming days, the report said.
Meanwhile, coking coal prices continued to rise in November. The Chinese government is trying to contain prices by increasing supply through policy initiatives; it has increased the number of working days for December for private miners.