Indian domestic steel players hit as ore prices remain firm
mce-anchor Mining News - Published on Tue, 27 Mar 2018
Image Source: thehindubusinessline.com
The Hindu Business Line reported that it’s about time the government cracked the whip on the speculative forces that are driving up iron ore prices and assure availability of ore to domestic steel companies. Ore prices rose by around 35 % between December and January, due to the Supreme Court ruling which ordered “temporary discontinuation of operations” at six large mines in Odisha which contributes half of India’s ore production for failure to pay compensation to the State government.
Rating agency ICRA estimated a 5.5 million tonne production loss if the mines were out of operation for the entire January to March quarter. But the actual production loss was lower as most of the mines paid the compensation and restarted operations. This softened the ore market but only marginally. NMDC, which increased lump prices from INR 2,400 a tonne to INR 3,100 a tonne, reduced prices by just INR 100 a tonne in March. Its current price of INR 3,000 a tonne is approximately 24 % higher than the prices on April 1, 2017.
Sources in the mining sector cite the cancellation of 88 mining leases in Goa in March as the reason for prices firming up. Since almost the entire 20 mt production in Goa was exported, it had little impact on domestic prices.
However, despite the disruptions, India’s ore production is expected to record a decent growth over last year’s 192 mt.
According to ICRA, considering the prevailing 82 % capacity utilisation of blast furnaces and 55 % capacity utilisation at sponge iron units; the domestic consumption of iron ore is barely 118 million tonne.
ICRA puts the total requirement of ore including exports (which grew by 22 % in April-September 2017 period) at 155 million tonne. This means even if the Goa output is ignored, the country will still have 20-25 million tonne additional supplies.
The gap created by cancellation of leases in Goa is unlikely to be unfilled for long. Odisha mines are likely to step up production to reap the benefit. Also, it is unlikely that the Goa mines will remain in limbo for long. Current ore price movement is not supported by fundamentals and is solely driven by speculation. It may help miners like NMDC to make a windfall profit in the January to March 2018 quarter but that might hurt the steel producers and other of user industries.
Image Source: thehindubusinessline.com
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