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NMDC has cut prices of its iron ore. This is third cut in rates since the government raised export duty on all grades of iron ore. Effective 12 July, prices of NMDC's lump ore and fines stand at 3,900 per tonne and 2,810 per tonne, respectively. These are roughly 36% and 45.5% down from levels seen at the end of April,  i.e. before the government raised export duty.

Investors are visibly unhappy. On Tuesday, shares of state-owned miner fell over 5% in early deals on the National Stock Exchange, pulling down stock to near its 52-week low of 101.55 seen on 20 June.

As such, given the decline in global iron ore prices, analysts expect domestic prices to remain under pressure. “Global (Australia) iron ore prices have declined 12% to $109 per tonne month-to-date in July-22, versus $123 per tonne in June-22. Local iron ore prices continue to be at a significant discount to imported ore prices (we note that local ore is inferior with higher alumina content)," said analysts at Nomura Financial Advisory and Securities (India) in a report on 11 July.

A weak demand environment has been adding to the woes. Despite the price cut in May-June, NMDC’s sales volume in the June quarter (Q1FY23) declined 20% year-on-year to 7.7 million tonne. Construction activities slow down amid the monsoon season which impacts demand for steel. Note that iron ore is a key raw material used in the production of steel.

“India is an oversupplied market for iron ore, exports form about 10% of production, and export duty has made exports unviable. We note that the market surplus is likely to worsen in FY2023E due to lower exports and ramp-up of volumes from captive mines," said analysts at Kotak Institutional Equities in a report on 11 July.

Against this backdrop, the brokerage has cut NMDC’s volume estimates by 3%/2%/2% and now foresee volumes at 41/43/44 million tonne in FY2023/24/25E, respectively. In FY22, sales stood at 40.7 million tonnes.

Also, Kotak has cut Ebitda estimates by 7%/7%/8% for FY23/24/25E. Ebitda is short for earnings before interest, tax, depreciation and amortization.

In the past one year, shares of NMDC have declined nearly 38%, while the sectoral Nifty Metal index has fallen at a much slower pace of 8.4%

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