Steelmakers feel the heat of rising iron ore price

Merchant miners in Odisha have raised the price of 62 Fe grade iron ore by more than nine per cent within two weeks as international prices climbed on sustained demand from China.

With benchmark prices of highgrade fines touching $80 a tonne, more material is getting diverted to the export market. This has put domestic steelmakers in a tight spot. Between August 10 and 23, prices of iron ore fines were raised from ~1,300 to ~1,425 a tonne, an increase of 9.6 per cent. Prices of lumps were raised 9.8 per cent from ~2,550 to ~2,880 a tonne in the period.

“When international iron ore prices reach the level of $80 a tonne, exports become very lucrative for miners,” said a senior official with a steel company sourcing ore from the market. “Miners in Odisha are reaping good margins from exports. For steel plants without captive ores, this is a tough time as they have to pay more for ore.”

Iron ore in China is trading 47 per cent higher from a low seen two months ago. Demand is especially buoyant for higher grade fines as a result of Beijing’s crackdown on its polluting industries, forcing its steel industries to opt for higher grade ore.

“More than 75 per cent of the steel produced in India is from purchased iron ore, and this increases dependence on merchant miners,” the steel company official said. “In the domestic market, pricing and supply of ore is concentrated in the hands of a few merchant miners. Due to the absence of indexing or a pricing mechanism, a downtrend in international market is either not followed or the trend is reversed in the domestic market. This results in high raw material cost and high cost of steel production.”

State-run miner Odisha Mining Corporation (OMC) had at the previous e-auctions, held on July 13, pegged prices of iron ore fines with 62-64 Fe grade, sourced from its flagship Daitari mines, at ~1,600 a tonne.

Steel companies without captive iron ore deposits started feeling the heat due to a wide differential in the prices at which they source the raw material. While the ex-mines cost of iron ore fines for a steel plant with a captive mine is around ~500 a tonne, it is ~1,400 for a plant with no captive resource.

To help achieve a level playing field, plants without captive mines have sought incentives either during procurement of raw material or during sale of finished products.

India's iron ore production surged 22 per cent in FY17 to 194 million tonnes from 156 million tonnes in 2015-16. Of the total production, steel industries consumed 126.67 million tonnes and around 25 million tonnes were exported. The rest 40 million tonnes of lowgrade material got added to the mine heads.

Demand spike in China catches miners’ fancy