India’s single largest iron ore producer National Mineral Development Corporation (NMDC) registered a fall in its iron ore production as well as sales in FY16.
In the beginning of FY16, NMDC had laid iron ore production guidance at 35 mnt and sales guidance at 38 mnt, but it missed both targets by 6.7 and 9.1 mnt respectively. NMDC’s iron ore production which was recorded at 30.44 mnt in FY15 fell by 7% y-o-y to 28.32 mnt in FY16. Its iron ore production from Chhattisgarh Bailadila mines dropped sharply from 20.97 mnt in FY15 to 16.6 mnt in FY16. However, its production from Karnataka mines viz Donimalai and Kumarswamy increased from 9.47 mnt in FY15 to 11.72 mnt in FY16.
Why did Sales Fall?
NMDC iron ore sales (lower by 5%) in FY16 was recorded at 28.87 mnt against 30.53 mnt in FY15. Out of this, share of sales from Chhattisgarh was 57% (16.4 mnt) and that from Karnataka was 43% (12.47 mnt). Reasons behind decline in NMDC’s sales are as follows.
1. Exports down by 54% Y-o-Y
NMDC’s Long-term Trade Agreements (LTAs) with South Korea and Japan, which expired in Mar’15, were renewed by the Indian government in June’15. Following which, the miner could only resume exports in the month of November. Delay caused in renewal and finalizing LTA resulted in fall in exports. NMDC exported 1.1 mnt iron ore in FY16 against 2.4 mnt in FY15.
Why did Production Drop?
Naxalite activities at NMDC’s Bailadila mines in Chhattisgarh Trade union strike in Sept’15 that impacted the company’s production nearly by 75,000 mt in Chhattisgarh and Karnataka. Its total impact was around 0.2 mnt.
2. Chhattisgarh based plants nearly trebled iron ore procurement from Odisha
Sponge iron manufacturers and pellet makers based in Chhattisgarh increased iron ore purchases from Odisha in FY16 over ample and cheaper availability of ore in Odisha.
Unlike FY15, when iron ore supply was restricted owing to temporary suspension of mining activities in Odisha, FY16 witnessed resumption of mining activities and enhanced production in the state. Chhattisgarh based plants sourced 4.78 mnt iron ore from Odisha in FY15. The figure moved up to around 11.6 mnt (excluding captive production) in FY16.
3. JSW Steel relied more on imports
JSW Steel, India’s leading private steel maker reduced purchases from NMDC in FY16. In FY15, the steel biggie had procured 1.65 mnt iron ore from NMDC Chhattisgarh. But in FY16, despite capacity enhancement, it sourced only 1.39 mnt from NMDC and procured considerable quantity of imported ore (majorly fines & pellet feed). The steel giant imported 1.58 mnt in FY16 over cheaper availability of imported ore. In FY16, global iron ore prices plunged by 37% y-o-y over increased low cost supply from world’s major miners along with weak economic condition of the world’s largest iron ore consumer – China.
Prices too Tumbled
Despite fall in production and sales, NMDC iron ore prices observed a downturn in FY16. Baila lump offers fell by 42% and Baila fines offers declined by 43% y-o-y.This, due to sluggishness in iron ore prices both in global as well as domestic market.
The Way Ahead
NMDC plans to raise its production to 32 mnt in FY17. Its production from Chhattisgarh mines is expected to remain around 20 mnt and 12 mnt production is anticipated to be achieved from its Karnataka mines.
Source: Steel 360 Magazine (May’16 Issue)