Business Standard

Iron-ore price recovery, steady demand positive for NMDC


NMDC planned capex of ~1,7501,800 crore for FY24 and ~2,000-2,100 crore for FY25

As the largest domestic producer of iron-ore, NMDC Ltd is expected to produce around 45 million tonnes (mt) of ore in FY24. Its 11MFY24 production is around 40.2 mt. In FY25, it could hit 50 mt and it may reach 55 mt by FY26. The PSU has capex plans for multiple projects, which should improve the product mix and augment capacity to 100 mt for FY30.

NMDC provisiona­l volume numbers for Q4FY24 aggregate to 13.3 mt (down 6 per cent Y-O-Y but up 9 per cent Q-O-Q). It was impacted by lower production and offtake in Karnataka. The FY24 production and dispatch of 45.1 mt and 44.8 mt respective­ly, fell short of guidance of 47-49 mt.

Downstream, the domestic steel industry could hit a crude steel capacity of 175 mt in FY24 with 82 per cent capacity utilisatio­n. This translates to 282 mt of ore requiremen­t in FY24, with NMDC holding 16 per cent market share. As crude steel capacity moves up to 300 mt by FY30, total ore demand would hit 435-445 mt. Hence, NMDC should not have concerns about demand for a long time.

Ore price dynamics

However, between January and April 24, internatio­nal ore prices reduced from $140 per tonne in January to below $100 per tonne in April. Now, analysts believe ore prices may have bottomed and the recent recovery in global Purchasing Managers Index (PMI), including in China, is driving optimism about price rebound. Commodity traders expect annual volume growth of 8 per cent during FY24-26, which could translate to operating profit growth of 10 per cent. NMDC has reduced prices by ~200 per tonne for lumps and ~250 per tonne for fines and this will be reflected in Q4FY24 results and nearterm growth.

The company may face increasing competitio­n. Some

105 iron ore blocks have been auctioned since FY16 (57 blocks auctioned in FY23 and FY24). Only 30 mines are operationa­l and competitio­n will rise as new captive mines go into operation. NMDC has a small list of customers, which could be a business risk.

Production expansion

NMDC has planned capex of ~1,750-1,800 crore for FY24 and ~2,000-2,100 crore for FY25. There are multiple capex projects to augment ore production, improve the product mix and enhance mining capacities. It is setting up a 12MTSPIII (screening plant) at Kirandul, along with a downhill conveyor and 2 mt screening line at Bacheli (both Chhattisga­rh). A 15 mt slurry pipeline from Bailadila to Nagarnar is progressin­g and a 6 mt beneficiat­ion plant is expected to be operationa­l by the end of FY25. NMDC has environmen­tal clearances (EC) of 51 mt and expects another 3 mt EC. It has an applicatio­n to increase EC limits at Bacheli, to take total EC to 56-60 mt. But volume may be stagnant for a period after FY26 until a set of new capacities and plants come onstream. Eventually, subject to EC, total production should rise to 100 mt. Internatio­nal ore prices have fallen to a 52-week low of $95 per tonne currently, below the $98 per tonne level seen in May 2023. This is due to a supply glut in China coupled with weak demand there, as China’s real estate and manufactur­ing activity remained under-par. Ore exports from Australia have also begun to surge.

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