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Karnataka auctions: Steel mills irked at high ore prices

Producers of pig iron, sponge iron, pellet and steel have expressed concern over a steep rise in iron-ore prices at last week's e-auctions in Karnataka. The steel mills, which have no alternative for sourcing raw material, are staying back from the auctions or buying very little just to keep their furnaces running.

A Supreme Court-appointed monitoring committee, which is overseeing the conduct of electronic auctions of iron ore in the state, had fixed the base price at Rs 2,300 per tonne for the latest auctions. This is double, when compared to the international prices in the Chinese market. Yet, this is lower by 15 per cent over the previous auctions when the base price was fixed at Rs 2,700 per tonne.

Quoting Platts index, JSW Steel Limited says the prices of ex-mine iron ore for 62 Fe-grade iron ore is pegged at Rs 1,150 per tonne after taking into consideration the duty and expenses towards exports. “This, when the monitoring committee has fixed the base price at Rs 2,300,” notes Vinod Nowal, its director and CEO.

The prices of iron ore sold at the e-auctions in Karnataka are around 80 per cent more than the spot prices in the Chinese market. “This is uneconomical for mills to run their plants,” Nowal told Business Standard. Currently, JSW Steel is operating its plant at an “unviable” 50 per cent of the installed capacity.

During the auctions held on Thursday and Friday, only 58 per cent of the total 2.25 million tonnes of iron ore released was sold, while there were no takers for the remaining 950,000 tonnes. While, JSW Steel picked up 926,000 tonnes, BMM Ispat bought about 144,000 tonnes. The rest was picked up by Kalyani Steel and MSPL among others.

Last month, auctions spanning two days (October 14 and 15) saw steel mills purchasing 364,000 tonnes — that is, 41.5 per cent of the 876,000 tonnes released.

"The very purpose of conducting auctions," according to a sponge iron and pellet manufacturer from Hospet, "is to help the industry get iron ore. For, there is no regular mining happening in the state. But, the monitory committee has arbitrarily fixed a very high-base price. This has defeated the purpose. It has pushed steel mills into deep difficulty."

About four months ago, NMDC was selling 58 Fe grade iron ore at Rs 1,400 per tonne. Even so, the base price of same grade ore at the e-auctions was fixed at Rs 1,750 per tonne. This, industry sources note, is more than double, when compared to the international market prices. In international markets, 58 Fe grade iron ore is available at Rs 700-800 per tonne.

According to JSW's Nowal, the final landed price of iron ore bought at the auctions works out to Rs 6,000 per tonne. In addition to this, the steel companies have to import coal at Rs 16,000 per tonne.

Another problem the steel mills face is the despatch of inferior-quality ore at the auctions. Alleges an owner of a pellet plant, who buys 58 Fe grade iron ore: “We are shown the high-quality ore at the auctions. But, when we take the delivery of the ore at our factories, we end up getting inferior quality ore.”

The steel mills are now considering the possibility of approaching the Supreme Court for an intervention to fix the base price in a scientific manner, the sources added.