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Business News/ Market / Mark-to-market/  NMDC rides high on iron ore price hike
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NMDC rides high on iron ore price hike

NMDC's shares are up by around 24% since mid-May, compared with a 29% increase in the S&P BSE Metal index

NMDC sells most of its iron ore in the domestic market, with exports contributing only 8.4% of sales in fiscal 2013-14. Photo: BloombergPremium
NMDC sells most of its iron ore in the domestic market, with exports contributing only 8.4% of sales in fiscal 2013-14. Photo: Bloomberg

Domestic iron ore companies may not have as gloomy an outlook as their global counterparts. International iron prices have been falling on the back of lower demand from China and the fear of unwinding of financial contracts using iron ore as collateral. Chinese imported iron ore (62% iron content) has declined by 19.6% compared with early April.

India’s iron ore sector, however, saw state-owned producer NMDC Ltd hike iron prices for its June benchmark rates. The company sells most of its iron ore in the domestic market, with exports contributing only 8.4% of sales in fiscal 2013-14.

Exporters such as Sesa Sterlite Ltd will be hit by lower realizations, but it has a bigger problem to tackle. It sold very little iron ore in 2013-14 due to the impact of regulatory actions on iron mining in Goa and Karnataka. Production had resumed in Karnataka but sales were very low and a road map to resumption of mining in Goa has become available. Investors will be more focused about when sales will return to healthier levels, and the price level of ore is a secondary consideration at this stage.

Since Sesa Sterlite also has a number of other products—non-ferrous metals and oil—in its portfolio, NMDC offers a pure-play exposure to iron ore. The good news is that its output is increasing and in the months of April and May, its despatches were up by 11.2% over the year-ago period.

It also announced an increase of 7% in its benchmark price for iron ore lumps and an increase of 8.6% for fines in June, over their May level. But prices of lumps had dropped in May and the increase is only 2.2% when compared with April. The increase in fines, however, is significant, especially as they contributed to 64% of NMDC’s output in 2013-14.

Higher prices should contribute to a better performance in the forthcoming quarters. However, if tight supply conditions change, then prices could soften in the second half, according to a Centrum Equity Research report. The rally in metal stocks is visible in NMDC’s shares as well, which are up by around 24% since mid-May, compared with a 29% increase in the S&P BSE Metal index.

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Published: 10 Jun 2014, 06:43 PM IST
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