Govt panel finds no merit in demand for cut in ore rates

Govt panelfinds no merit in demand for cut in ore rates

Agovernment committee on iron ore pricing has rejected a demand from steel companies that service charges and export tax be excluded while calculating the price of the mineral they buy from the state-owned National Mineral Development Corp. Ltd (NMDC).

Currently, domestic ore prices are fixed on par with those on long-term export contracts NMDC signs with Japanese steel mills and South Korea’s Pohang Iron & Steel Company (Posco). The corporation exports about 3.5 million tonnes (mt) out of its total production of 27 mt; the rest is sold to domestic players that have tied up for supply of ore.

Steel makers such as Ispat Industries Ltd and Essar Steel Ltd, which do not have mines of their own, claim that the export price is inflated by the additional 3% service commission that NMDC pays to Mines and Mineral Trading Corp. Ltd for finalizing export contracts and organising vessels. They wanted this to be deducted while calculating the price of the ore for sale in the domestic market. The companies also want the export tax on ore to be deducted while calculating this price.

An internal report of the committee headed by A.K. Rath, financial adviser to the steel ministry, has said such a deduction is “unacceptable".

It has also said the export duty of Rs300 imposed on iron ore earlier this year has no bearing on the prices at which NMDC sells ore in the international market, and that this price is actually lower than spot prices in the domestic market.

According to the report, domestic spot prices in March were around $63 a tonne; NMDC was supplying ore (in the export and in the domestic market) at $45 (Rs1,845)a tonne, a difference of nearly 17%. “At present, Chinese spot prices are ruling over $90 a tonne. Our offer is still much lower," said an official at the National Mineral Development Corp. who did not wish to be identified.

NMDC currently sells iron ore at Rs1,646 a tonne for lumps and Rs1,209 a tonne for fines’ to long-term domestic customers, added the official. The Corporation has allocated around 20 mt for sponge iron plants in Chhattisgarh.

But steel companies without mines of its own say their input cost works out to be much higher without exclusive mining rights as port handling and rail freight add to production costs. Typically, it costs Rs300 to produce a tonne of iron ore. Only a few companies including Steel Authority of India Ltd, Tata Steel Ltd and JSPL Ltd have iron ore mines of their own. The pricing policy report comes at a time when the scramble for the commodity peaks.

Companies have announced plans to build steel mills, but struggle to access iron ore amid mounting litigation over mining contracts. Posco plans to build a 12 mt plant in India but is facing delays over acquiring mining leases.

In the pre-boom years, the corporation settled prices of iron ore on its own, but escalating prices fuelled by growing Chinese demand forced it to revise prices thrice in 2004, forcing domestic steel companies to ask the government to intervene and set a new pricing methodology.