NMDC, which earlier used to adopt a uniform pricing policy in both Chhattisgarh and Karnataka, is now seen adopting different pricing policies for the two states. Surprisingly, the miner has cut iron ore prices twice for its Chhattisgarh mines since May’16, while in Karnataka; its e-auction prices have remained stable since Apr’16. NMDC is India’s largest iron ore producer with a share of nearly 18% (28.6 mnt) in the country’s iron ore production (155 mnt) last fiscal. In FY16, it produced 17 mnt iron ore from Chhattisgarh and 11.6 mnt from Karnataka. NMDC’s share in Karnataka’s iron ore production is about 45%. Therein, unchanged iron ore prices have made survival of steel mills in South India tough.
NMDC Chhattisgarh Prices Down by 22% Since Apr’16
NMDC has cut iron ore prices for its Chhattisgarh mines two times in succession since May’16. If we compare the current (June’16) prices with those of Apr’16, prices are down by about 22%. Baila lump prices have fallen by INR 300/mt, while prices of Baila fines have declined by INR 400/mt since the Iron Ore Price Trend in 2016 beginning of FY17. Weak sponge iron prices in Central India is the prime reason for the miner to reduce conducted offers in Chhattisgarh. Also, Chhattisgarh based units procure from Odisha, thus recent price reduction by Odisha based merchant miners may be another reason behind NMDC’s price cut for its Bailadila material.
NMDC Karnataka E-auction Prices Unchanged Since Apr’16
Though the miner has cut prices in Chhattisgarh, its Karnataka e-auction base prices have not noticed any transition since past three months. NMDC’s Donimalai as well as NMDC Kumarswamy e-auction base prices have remained unchanged since Apr’16. Currently, base prices of lump (Fe 65.2%) offered by NMDC Donimalai mines are seen at INR 2,184/mt (basic). Iron ore base prices of NMDC Kumaraswamy mines are seen at the following levels – fines (Fe 57.1%) @ INR 1,185/mt and lump (Fe 63.7%) @ INR 1,856/mt (basic).
Tough Time for South India Based Sponge Iron Units
While on one hand, raw material prices (primarily iron ore and coal) have not reduced, sponge iron prices have fallen owing to weak buying on the other. This has compelled many small sponge iron units to shut down operations. While in the beginning of this fiscal, C-DRI prices in Bellary for 78 FeM were seen at INR 12,550/mt (ex- works) level, prices presently have nosedived to INR 11,400/mt (ex-works). Market participants stressed that this is a clear indication of NMDC’s adoption of differential pricing policy.
“A south India based sponge manufacturer in conversation with Steel 360 shared “Declining sponge iron prices and rising raw material costs have hardly left any room for margins with the sponge manufacturers. Sponge iron units are under huge pressure amid declining selling prices and increasing production cost. Despite several efforts from Karnataka based steel units, NMDC’s base prices in e-auctions have remained unchanged.”
“Despite rigorous efforts of South India based units, no improvement has been seen in the matter. KISMA had filed a petition with CII regarding the same stating it to be unfair trade practice, but the scenario remains unchanged” said another South India based steelmaker.
Source: Steel 360 Magazine JUly’16 Issue