Yesterday, NMDC reduced iron ore base prices by INR 200-420/MT for Oct’15. With DMF contribution and royalty, the effective iron ore price reduction made by the miner is INR 126-275/MT.
National Mineral Development Corporation (NMDC), India’s single largest iron ore producer, yesterday announced a price cut of INR 350-420/MT on lump, INR 300/MT on ROM and INR 200/MT on fines for Oct’15 deliveries. The prices would now also take into consideration District Mineral Foundation (DMF) apart from royalty.
According to the new MMDR amended act, miners have to pay towards DMF to support project affected people. The contribution has been fixed at 30% of royalty for existing leases (those executed before 12 Jan’15) and 10% of royalty for new leases (those executed after 12 Jan’15). Indian govt, on 17 Sept’15, announced the launch of Pradhan Mantri Khanij Kshetra Kalyan Yojana (PMKKKY) as a measure to support project affected people using the funds generated by DMFs.
SteelMint has tried to make an analysis of what would be the probable outcome of DMF on iron ore pricing of NMDC.
NMDC iron ore prices for Oct’15
|
Particulars |
Fines | ROM | Lump |
DR-CLO |
| Grade (Fe %) | 64 | 65 | 65 | 67 |
| Base Price | 1,460 | 2,210 | 2,500 | 3,020 |
| Royalty (15%) | 246 | 483 | 483 | 483 |
| DMF (30% of Royalty) | 74 | 145 | 145 | 145 |
| Total | 1,780 | 2,838 | 3,128 | 3,648 |
Royalty as per Indian Bureau of Mines prices
Source: SteelMint Research
NMDC iron ore prices: Oct’15 vs Sept’15
|
|
Grade (Fe %) | Prices in Oct’15 | Prices in Sept’15 |
|
| Blue Dust/ Fines | 64 | 1,780 | 1,906 | -126 |
| 10-150 mm, ROM | 65 | 2,838 | 2,993 | -155 |
| 6-40 mm, Baila Lump | 65 | 3,128 | 3,333 | -205 |
| 10-40 mm, DR CLO | 67 | 3,648 | 3,923 | -275 |
Oct’15 prices inclusive of royalty @15 % and DMF @30% of Royalty
Sept’15 prices inclusive of Royalty
Royalty as per Indian Bureau of Mines prices
Source: SteelMint Research
For instance, base price of NMDC fines (Fe 64%) was INR 1,660/MT and INR 1,906/MT (including royalty) in Sept’15. The miner has cut its base prices by INR 200/MT to INR 1,460/MT which would now amount to a total of INR 1,780/MT (including royalty & DMF contribution). Hence, the actual price cut is of INR 126/MT (INR 1,906-1,780/MT).
It can be inferred that even though the miner has reduced iron ore base prices in a higher range for Oct’15, the actual difference in prices upon implication of DMF, is lower. And hence, the price cut by the miner is not as substantial as it appears.
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