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Iron ore prices likely to soften by 20-40%

Steel industry awaits fall in domestic prices on account of export duty rise and drop in international rates; NMDC yet to decide.

The government’s recent move to increase the duty on iron ore export to 30 per cent is likely to result in a fall of 20-40 per cent in domestic ore prices, depending on the grade. Though NMDC, the country’s largest producer of ore, is yet to take a decision on decreasing the prices, the steel industry is upbeat.

“Internationally, iron ore prices have fallen by $50 a tonne and at the same time the Indian currency has depreciated by about 22 per cent to the dollar. Over and above, there is an export duty increase. All this put together, should bring the price below Rs 2,000 a tonne for 62.5 per cent Fe grade from the existing Rs 3,300 a tonne,” said Seshagiri Rao, joint managing director and group chief financial officer, JSW Steel.

JSW Steel, which runs a 10-million-tonne (mt) per annum steel plant in Karnataka, would be among biggest beneficiaries. The company requires about 50,000 tonnes of iron every day for its plant, depending on the grade of ore.

Presently, the base price at Karnataka e-auctions is fixed at Rs 2,700 a tonne for 63 per cent Fe grade and NMDC charges Rs 3,380 a tonne.

Rao said JSW is on course to achieve its targeted production of 7.5 mt for the current financial year, as the supply from auctioned ore in Karnataka has improved in recent months. The company has improved capacity utilisation from 63 per cent in October to 68 per cent in November and much more in December. “Continuation of auctions in Karnataka is key to our growth and 7.5 mt production looks possible at this stage,” Rao told Business Standard.

In Karnataka, so far, 18 mt of iron ore has been auctioned. Out of that, almost 12 mt has been sold.

“The government’s move is beneficial for long-term survival of the steel industry. We are exporting iron ore worth only $4.7 billion and importing steel worth $10 billion and it does not make sense to export low value ore for a country like India. Everybody, including China, is preserving their precious natural resources. From the steel industry perspective it is a welcome step to increase duty on export of iron ore,” Rao said.

Presently, prices of ore are in the range of $110 to 135 a tonne in the international market, while domestic prices are at $67 a tonne.

N K Nanda, acting CMD of NMDC, said, “We have not decided about decreasing the prices of iron ore. The market is speculating about it. In fact, some mines in Orissa have increased their prices due to shortage of ore. There will be some impact of price reduction in the international prices. But, we are yet to take a view.”

However, the Federation of Indian Mineral Industries (Fimi) do not expect prices to drop much in the long term. They feel the government move to increase export duty is disastrous.

“There is no logic in increasing the duty. In the long term, prices will only increase, because the mines cannot store iron ore fines for long. The country will also lose its share in the international market. The railways and port sector will suffer huge losses,” D V Pichamuthu, director, south, Fimi, said.

Agreeing with him, Bhavesh Chauhan, analyst with Angel Broking, said “There may not be much drop in the prices domestically, as they are already quite low compared to international prices. The demand for ore is robust and there is a shortage due to the halt on mining in Karnataka. At the most, the prices may drop to around $60 a tonne as against the current level of $67 a tonne in the domestic market.”

Industry bodies like Assocham and BCIC have welcomed the government move. “The policy initiative is a step in the right direction. Conservation of iron ore is in the interest of India, in view of the fact that our reserves will run out rapidly due to the projected growth of the economy. Therefore, the industry always advocated a complete ban on the export of iron ore,” Assocham said.