- Buyers-sellers still prefer auction route
- Confusion prevails over pricing aspects
- Long-term sales contracts being explored by miners
Morning Brief: Karnataka’s iron ore sales dropped 24% y-o-y during January-November, 2022, reveals SteelMint data. Sales (including estimated direct sales) stood at 21 million tonnes (mnt) in this period against 27.80 mnt seen in the corresponding period last year (CPLY). Sales from auctions alone fell to 20.57 mnt in the period under review from 27.8 mnt in CPLY.
Meanwhile, in November, 2022, the total quantity booked rose 56% to 1.65 mnt against 1.06 mnt in October, where the key sellers were NMDC (953,000 tonnes), Vedanta (388,000 tonnes) and SMIORE (208,000 tonnes). The weighted average fines price in November rose to INR 2,050/t against October’s INR 1,900/t.
Reasons behind the fall in Jan-Nov volumes
- Less clarity post-SC order: There is still confusion relating to various aspects of sales and pricing. In fact, iron ore e-auction sales in Karnataka dropped to their lowest level in over two years to a little under 1 mnt in June due to confusion over sales and dispatches following the SC verdict. As of now, majority of the players are preferring the auction route. It may be recalled the apex court, in a key judgment in May, had lifted the ban on iron ore exports from mines in Bellary, Chitradurg and Tumkur districts in Karnataka, paving the way for direct sales. Setting aside its 2011 order of disposal of the accumulated iron ore through the process of e-auction conducted by the Central Empowered Committee (CEC)-appointed Monitoring Committee, the apex court ruled in May that direct contract sales and/or spot sales would henceforth be allowed.
- Disparity in IBM & current prices due to delay: Post-SC order, there is still no clarity on whether royalty, DMF and NMET contributions should be made together. While some miners are quoting the base price inclusive of royalty, DMF and NMET, others are excluding all three.
Secondly, since IBM’s average sale prices are issued after a delay of 2-3 months, miners are left to their devices to discover and sell at a certain price each month and then adjust accordingly.
- Rains, export duty subdue demand: A couple of months were impacted by the monsoons, which led to shortage of material. Karnataka’s iron ore production fell 28% in H1FY23 (January-September) y-o-y due to the rains. Moreover, the May, 2022 export duty led to production cuts by steel mills, which resulted in lower offtake of iron ore too.
Production
Karnataka’s iron ore production volumes have fallen by almost 10% y-o-y in January-November 2022 to 31.23 mnt against 34.61 in January-November, 2021. However, the fall in production is lower compared to sales and this is largely due to improved production from the captive C category auctioned mines.
Outlook
Buyers and sellers tell SteelMint that both have been working on the auction model for years and hence it is difficult to switch to direct sales immediately especially because of lack of clarity post-the Supreme Court order. Majority of the miners are still opting for the auction route. “The comfort factor is high with regard to the auctions. It is a transparent mechanism,” observed a source.
However, in the long run, they are expected to explore the long-term agreement (LTA) mode too. SteelMint heard that some large miners are in the process of connecting with the large mills for LTAs for direct sales in future.
Iron ore and pellet exports from Karnataka are also expected to pick up post-removal of the export duties.
Karnataka road show
How is Karnataka’s iron ore and pellet industry shaping up post SC verdict? What is the potential in terms of production, demand, exports, and sales? Are you an industry stakeholder keen to find answers to these and several other queries? Book your seat at SteelMint’s Road Show-cum-Conference on Karnataka’s Mining Sector to be held on 19-21 January, 2023.
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