NMDC’s profitability is closely linked to iron ore prices. Take the March quarter. Its sales rose by 10.7% in volume from a year ago, but average prices of iron ore lumps increased by a mere 0.9% while prices of iron ore fines were down by 54%. The company’s sales declined by 45.9% to Rs.1,530 crore as a result, while operating profit fell by 62%.
The two charts alongside show how its profit closely mirrors iron ore price movements. Iron ore prices have been falling in FY16 due to excess supply and a sluggish demand outlook for steel. They picked up in the latter part of the year, as China’s appetite for producing steel and, therefore, iron ore has picked up. But volatility continues.
NMDC’s prices of fines rose from Rs.1,560 a tonne in January to Rs.1,760 in March, then to Rs.1,860 in April and fell to Rs.1,660 a tonne in May. Still, average prices in the June quarter will be higher than the March quarter.
That is good news but the recent softness in international prices is a worry. The NMDC share has fallen from its recent high of Rs.103 in early-April to Rs.89.80 on Monday.
The writer does not own shares in the above-mentioned companies.