After a series of sops offered to the domestic Steel- makers last fiscal, government is now keen on ensuring that any fluctuations in the prices of iron ore do not derail its efforts and as such, it wants to set a price band for the raw material. Prices would not be allowed to fluctuate beyond the band.
The intention is clear, that the government wants to ensure iron ore prices to remain as competitive as possible for steel makers and even if there is any fluctuation, it should not be more than, say 10-12%. It will benchmark the price. Government has already set up a committee to suggest the pricing mechanism and it has already held its first meeting. Neither FIMI nor state-run iron-ore miner NMDC has any representation in the committee.
The move, according to analysts,amounts to a throwback to the history when prices of many industrial products were regulated. They denounced the “flawed” move as iron ore mines are auctioned in India unlike any other major producing nations such as Australia. The steel prices are not regulated though.
Iron-ore accounts for only 10% of the cost of steel-making for SAIL and Tata Steel which have 100% captive iron-ore, while in case of others like JSW Steel and Essar steel, which buy the raw material from the open market, the cost could be around 20-25%.
It generally takes 1.6 tonne iron-ore to produce one tonne of iron. India had produced around 97 mnt steel last year; however, more than half of it was through the induction furnace route, which does not require iron-ore as raw material.
Though margins are high, iron ore industry is also highly burdened. It has to pay royalty, make contribution towards DMF and NMET. There are limited takers for fines, which are an inevitable by-product while producing lumps or higher grade ore. Indian steelmakers mostly use lumps for want of necessary technology to use low-grade ore to feed into blast furnaces. Huge stockpiles at pitheads hinder production in many mines.
The miners’ federation, FIMI, has denounced the proposal as “bogus and foolish” and feels that it would be grossly unfair for the government to cap profits. It feels that the move would sound death-knell for the mining industry.
Sources said that the idea of reining in iron-ore prices stemmed from steel-makers’ continuous tirade against “arbitrary pricing” state-run NMDC, which private miners mostly follow. They also alleged shortage in iron-ore supply, which seems to be grossly incorrect as mine head stocks are on the rise with each passing day.
FIMI’s argument is clear. It says if there is any need for capping the price; it should on steel prices as the metal is used by millions; while iron ore has a limited customer base – only the steel firms.
The production of iron ore consisting of lumps, fines and concentrates during 2015-16 stood at 156 mnt, which is a growth of 20% over 129 mnt produced in 2014-15. Odisha was the leading producer of the ore accounting for 51% of the total production followed by Karnataka and Chhattisgarh at 16% each and Jharkhand at 12%. Public sector mines contributed about 39% of the total production while private sector accounted for the remaining 61%. India had 297 operating mines in 2015-16.
Any price cap will make the private sector miners uncompetitive.Steel industry had fair share of its luck in the last fiscal. It has received a lot of government support right from minimum import prices (MIP) to anti-dumping duty. Safeguard duty has also been levied on some products.
Source : Steel 360 Magazine May’17 Issue