Steel companies who don't have captive iron supplies have a reason to cheer. Domestic iron ore prices are expected to slide in coming months on the back of improved supply of the commodity from states of Odisha and Karnataka apart from higher production by iron ore mining company NMDC.
The state-run miner NMDC will be raising its output by 31 percent to 46 million tonne in the current financial year as two mines with seven-million-tonne iron ore capacity each will be contributing to the company's overall output. Currently, NMDC produces 32 million tonne of iron ore.
"We are hoping that with increased supply from NMDC this year, prices of iron ore will come down in coming months," Seshagiri Rao, joint managing director and group chief financial officer at JSW Steel had said in the earnings conference held early this month.
This is significant for steel companies as local prices have not kept pace with global ore prices which fell sharply.
Global iron ore prices have declined 29 percent since January and are currently rulling at around $50 per tonne.
"We are hoping that with increased supply from NMDC this year, prices of iron ore will come down in coming months," Seshagiri Rao, joint managing director and group chief financial officer at JSW Steel had said in the earnings conference held early this month.
This is significant for steel companies as local prices have not kept pace with global ore prices which fell sharply.
Global iron ore prices have declined 29 percent since January and are currently rulling at around $50 per tonne.
These eight mines, once they start production, will add 2.5 million tonne of ore to the market in Karnataka.
At present, 23 mines in the private sector and two mining leases of the public sector mining major NMDC are producing around 20 million tonne ore annually in Karnataka. The requirement, however, is of about 35 million tonne per annum.
While Karnataka and NMDC are set to add to the overall domestic iron ore supply, Odisha is also likely to join the league as 29 non-captive iron ore mines of this state have recently seen its lease validity get extended.
In the year ended March, top producer Odisha witnessed sharp decline in iron ore production to 47.35 million tonne, lowest in last 10 years, due to closure of key mines after Supreme Court order in May 2014. Output was even lower that the cap decided by the state for iron ore at 57 million tonne.
"The iron ore production from non-captive mines for the current fiscal is yet to be worked out and will at least take a month," Deepak Kumar Mohanty, director of mines at Directorate of Mines-Odisha told Business Standard. "About 50 percent of the non-captive production will be directed towards local end-use while the balance can be sold by these miners to who so ever they want to," added Mohanty. Separately, state-run miner Odisha Mining Corporation, last month, saw state cabinet approve an amendment to the long-term linkage policy for supply of iron ore and chrome ore to local end-use industries. Under the modified policy, the quantity of iron ore to be offered under long-term linkage has been stepped up from 50 per cent to 70 per cent of salable stock of Odisha Mining Corporation (OMC).
"Due to modification in long-term linkage policy, more iron ore will be available for state based end-use plants and the chunk towards e-auctioned ore will reduce to 30 percent from 50 percent earlier," said Mohanty. "How this alteration in supply of ore will impact domestic prices of the commodity will be a thing to be watched. A clear impact of this supply channelizing will be visible only in the next three-to-six months," he added.
As per Citigroup's recent estimate, iron ore prices in the global market are likely to fall further on the back of peaking consumption of steel in China which will reduce long-run price forecast for the raw material. From 2016 to 2018, prices may average $40, it said.
Iron ore lost 36 percent in 2014 as Rio Tinto Group and BHP Billiton Ltd. in Australia and Brazil's Vale SA expanded low-cost output to boost supply and cut costs, spurring a glut as China slowed.
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