BackIron ore has surged yet NMDC is cutting prices
NMDC has cut prices about 6% in 2016 even as iron ore climbed 36% internationally
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India’s top iron ore miner is feeling the squeeze despite a global rally in the price of the steel-making material.
NMDC Ltd has cut prices about 6% in 2016 even as iron ore climbed 36% internationally. Challenges include record domestic supplies, moderating local steel demand and transport costs on India’s clogged railway.
“Transport costs are prohibitive," T.R.K. Rao, the commercial director at NMDC, said in an interview on 31 August. “The answer to this is to have discussions with Indian railways to rationalize freight."
NMDC has 6 million tonnes of iron ore lying around, Rao said. That’s part of a record overall stockpile in the industry in Asia’s third-biggest economy. Worse yet for Indian miners, global prices may weaken as demand for steel eases in China, the biggest producer of the alloy.
Rao said he’s trying to see how to reduce NMDC’s logistics costs to help cope with the current outlook.
The company faces risks from state governments’ plans to auction iron ore mines in Odisha and Karnataka states. India’s second-biggest steelmaker, JSW Steel Ltd, which buys a major chunk of its ore from NMDC, plans to bid for mines in both states.
“The new incremental domestic supplies will compete with NMDC’s iron ore and weigh on pricing," Chintan Mehta, an analyst at Sunidhi Securities & Finance Ltd, wrote in a 16 August note.
NMDC’s net income dropped 30% to ₹ 710 crore in the three months through June, according to data compiled by Bloomberg News. The stock has declined 11% in the past three years, compared with a 48% advance in the S&P BSE Sensex Index.
India’s government is aware that there are “piles of iron ore" lying unused in states such as Jharkhand and Odisha, mines secretary Balvinder Kumar said in an interview on 19 August in New Delhi.
The Federation of Indian Mineral Industries pegged total surplus stockpiles in the biggest producing states of Odisha, Karnataka, Jharkhand and Goa at roughly 196.20 million tonnes at the start of the current financial year on 1 April. That’s up 35% from a year earlier, according to the data.
The federation estimates India extracted 139.73 million tonnes in 2015-16 and consumed 101.82 million tonnes.
Supply is rising partly because merchant miners have until 2020 before their leases expire under India’s new mines policy, prompting them to extract to “the full potential," according to Ashish Kejriwal, an analyst at Elara Securities (India) Pvt. Ltd.
One solution may be exports: India is looking at whether to scrap a 30% export tax on higher grade ore after lobbying by the mining industry. Bloomberg
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