There’s More To Worry For Indian Iron Ore Miners Than Global Price Trend

Iron ore prices in India and across the world have slipped from their peaks this year. But there’s more to worry for domestic miners of the steel raw material.NMDC Ltd. slashed prices of lumps and fines by Rs 1,000 a tonne over the preceding month in September, the steepest cut so far this year, according to the nation’s largest iron ore miner's exchange filings. The commodity is at its cheapest since April.The decline, Edelweiss Securities said, came after producers in Odisha cut prices by 23% since July-end..Globally, iron ore turned cheaper after China stepped up restrictions on industrial activity in some provinces. The world’s biggest steel-producing nation is intensifying production curbs to control pollution as part of its 2060 carbon-neutrality goal. Restrictions also focus on improving air quality for the Winter Olympics next year. That, according to a Bloomberg report, caused the iron ore to plunge.The prices, however, rebounded sharply on Sept. 22 as China soothed Evergrande Group’s debt concerns. In Singapore, iron ore futures, according to a separate Bloomberg report, climbed more than 15%, surging back above $100 a tonne from their lowest in 16 months. Yet, they are still way below the recent peak..While iron ore prices in India track the global trend, there are other concerns:Optimum ProductionIron ore production in India has been cruising at a consistent, almost pre-Covid level of 20-21 million tonnes a month till August, according to a report from SteelMint. There have been no supply hiccups to create room for a price increase, it said.In a June-quarter earnings conference call, Seshagiri Rao, joint managing director at India's largest steelmaker JSW Steel Ltd., said he didn’t expect the domestic iron ore prices to rise given incremental supplies from Odisha.Inventory Build-UpIron ore miners, according to SteelMint, are keen to generate enquiries and liquidate stocks. That's prompted them to cut prices.Some buyers are also reluctant to book at current prices. They're holding back, hoping that a poor response to Odisha Mining Corp.’s previous auction may allow miners to reduce base price, which is still higher than the market rate even amid a global slump, SteelMint said. That’s causing inventories to pile up.Mine AuctionThe Odisha government in July invited a tender for online auctions of 11 more mining blocks, including seven new ones. Companies such as JSW Steel, Tata Steel Ltd., ArcelorMittal, Essel Mining & Industries Ltd., Rungta Mines Ltd., MSPL Ltd., Vedanta Ltd. and Orissa Minerals Development Co. are expected to bid.Jindal Steel & Power Ltd. said it has won the Kasia iron ore mine at 118.10% premium.Though production from these mines would take time, it would eventually ensure constant supply for bidders for their captive requirement, leaving little room for a price hike..JSW Steel's Seshagiri Rao Says Global Energy Transition Has Triggered This Steel Supercycle.The EffectsIron Ore Realisation HitNMDC, according to its Q1 earnings call highlights, aims to deliver a volume of at least 44 million tonnes in the current financial year compared with 35 million tonnes in the previous fiscal.Higher volumes and falling prices are expected to lower realisation—or the average selling price per unit of the product—for iron ore producers.NMDC has yet to respond to BloombergQuint’s emailed queries.Besides, an increase in supply from Vale’s mines in Australia is expected to keep global iron ore prices under pressure. Brokerage Ambit Capital has built in a 50-million-tonne rise in the output of the world’s second-largest producer of the steelmaking ingredient through calendar year 2025.Muted Steel MarginWith demand for the finished alloy picking up and raw material costs falling, profitability of steel mills is expected to improve.Rakesh Arora, managing partner at Go India Advisors, however, said while lower iron ore prices would bring some relief, costlier coking coal would compress margins of steelmakers from the third quarter, given the build-up of low-cost inventory in the second quarter.“Indian iron ore prices are down by Rs 1,000-1,500 per tonne, which would aid the margin by Rs 1,600-2,300 a tonne," Arora told BloombergQuint. "But coking coal price has increased from $120 a tonne in the first quarter to $379 a tonne until now, the impact of which is around Rs 6,000 per tonne.” Tata Steel and JSW Steel have yet to respond to BloombergQuint’s emailed queries.Jindal Steel’s Managing Director VR Sharma said iron prices in India have “softened by Rs 2,000 per tonne but the impact of coking coal price increase has offset the gain for steel producers”.

There’s More To Worry For Indian Iron Ore Miners Than Global Price Trend

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