Iron ore price fall yet to reflect in domestic mkt
Steel companies in wait-and-watch mode, expect reduction from NMDC
The sharp drop in global iron ore prices is yet to completely reflect in the domestic market. A marginal drop in NMDC ore prices in July has not yielded much for the secondary producers, said industry executives.
“Domestic iron ore prices need to correct by a good ~2,000 per tonne for us (domestic market) to be aligned with the global market. The July price cut by NMDC translates into cost reduction of just about ~350 per tonne, which is negligible,” RK Goyal, managing director (MD) of Kalyani Steel, told Business Standard.
Global iron ore prices hit a three-month low last week, sending a wave of correction for prices of ore in the domestic market. NMDC, the country’s largest iron ore miner, however, has slashed prices between ~200 and ~400 per tonne, leaving the industry parched for more price cuts.
“We are in wait-and-watch mode and anticipate further reduction from NMDC in the coming weeks. Our cost reduction (for steel making) should be to the tune of ~2,000 per tonne for secondary players, post ore price correction here (domestic market),” said Goyal.
In the domestic market, iron ore fines price currently stands at ~6,000 per tonne, while the lump price is ~10,000 per tonne.
Nearly 50 per cent of domestic steel industry capacity comprises secondary steel players, who rely on market purchased iron ore. The primary steel producers, on the other hand, have captive ore sources and remain insulated from fluctuations in iron ore prices.
While the cost pressure for secondary steel producers has reduced albeit slightly, the demand for long steel has taken a hit in select segments, said industry executives.
“Demand for semiconductors used in the auto industry has come down. Due to this, though our utilisation levels increased a few weeks ago, they have fallen again,” said a long-steel producer.
With demand uptick stemming from the government’s thrust on infrastructure, mainly in the rural markets, capacity utilisations for medium and small long steel product manufacturers are expected to improve in the coming quarters, said ICRA in a recent report.
“Demand for long products, overall, has been good. There are select segments that remain weak in demand but others have picked up,” said P.K. Sen, director general with Institute for Steel Development & Growth (INSDAC).
Since January, long steel products have declined to ~53,000 per tonne from ~56,000 per tonne a few months ago. “Oxygen supply has been regular and adequate since June, and to that extent, there is relief. But with demand dynamics changing, how pricing and margins will look for secondary players remains to be seen,” said Goyal.
Among the primary steel producers, Jindal Steel & Power and state-owned Steel Authority of India (SAIL) are primarily into long products.
WHILE THE COST PRESSURE FOR SECONDARY STEEL PRODUCERS HAS REDUCED ALBEIT SLIGHTLY, THE DEMAND FOR LONG STEEL HAS TAKEN A HIT IN SELECT SEGMENTS