Govt yet to work out iron ore pric­ing mech­a­nism; firms want bench­mark­ing


Resource Digest - - CONTENT -

The Union gov­ern­ment has dropped the pro­posal to cap iron ore prices but is yet to de­rive a pric­ing mech­a­nism for the raw ma­te­rial. Some of the min­ing com­pa­nies are pitch­ing for a bench­mark price for the raw ma­te­rial on the lines of oil and coal.

The pric­ing of iron ore has to be based on global par­ity and the lo­cal de­mand and sup­ply sit­u­a­tion. The pric­ing of the end­prod­uct is mar­ket driven, ac­cord­ing to a min­ing com­pany of­fi­cial who spoke on con­di­tion of anonymilty.

The min­istry of mines and the min­istry of steel are at log­ger­heads over the is­sue, with the for­mer ask­ing for a bench­marked price for the es­sen­tial raw ma­te­rial and the lat­ter ve­he­mently op­pos­ing it, fear­ing a spike in the price of the end prod­uct — steel. The side favour­ing bench­marked iron ore prices rea­sons that, in­ter­na­tion­ally, the raw ma­te­rial in ques­tion and the price of min­er­als in gen­eral are bench­marked to a par­tic­u­lar ge­og­ra­phy or coun­try's price.

Cit­ing an ex­am­ple, an in­dus­try ex­pert said that as in the case of bul­lion (gold) or eq­uity, where prices are de­rived by a cer­tain in­dex, the same should be repli­cated for min­er­als.

Bench­mark­ing the price also means that the states re­ceive their due share of taxes, he added.

Cur­rently, the In­dian Bureau of Mines (IBM) col­lates the price of iron ore from all the states and de­cides the val­u­a­tion of roy­alty ev­ery month. Ex­perts feel that global prices can also be added to the bas­ket and a par­tic­u­lar price can be ar­rived at.

How­ever, R K Sharma, sec­re­tary-gen­eral of the Fed­er­a­tion of In­dian Min­eral In­dus­tries (FIMI), has con­trary views on the sub­ject of bench­mark­ing iron ore prices.

He feels that the meth­ods — ei­ther auc­tions or buyer/ seller agree­ments — un­der the cur­rent frame­work are bet­ter. He even fears that bench­mark­ing of prices might lead to higher cost of the raw ma­te­rial and, sub­se­quently, less off-take from the mines at a time when the coun­try is sit­ting on sur­plus min­eral.

Ac­cord­ing to a re­port from the In­dian Bureau of Mines, the coun­try had ex­cess iron ore to the tune of 149 mil­lion tonnes in 2016-17 as against to­tal out­put of 191 mil­lion tonnes.

"Vo­latil­ity drives the min­ing in­dus­try. If prices are high, the min­ers mine more. Prices can be bench­marked with the in­ter­na­tional mar­ket from the eco­nomic point of view but the fact re­mains that the price of cok­ing coal (70-80 per cent of the to­tal cost of steel) has a big­ger im­pact on the price of steel than iron ore," ex­plained for­mer mines sec­re­tary S Vi­jay Ku­mar.

In March Steel Sec­re­tary Aruna Sharma had said that the Cen­tral gov­ern­ment was work­ing on a for­mula that might act like a cap on iron ore prices.

The steel min­istry was of the opin­ion that the cap or bench­mark would lead to lesser price fluc­tu­a­tions of iron ore. The need for capping or bench­mark­ing was felt af­ter the price of the raw ma­te­rial from China wit­nessed a rise ear­lier this year.

Ex­perts be­lieve China, which is the world's top pro­ducer and con­sumer of steel, is ex­pected to boost in­fra­struc­ture spend­ing, and iron ore, which is used in mak­ing steel, might rally fur­ther.

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