Aggressive bidding in response to the recent round of auctioning of mechanical and manual plots for iron ore and iron ore pellets at Paradip port is likely to cast a shadow on export of the commodity, industry experts feel.
Iron ore traffic has witnessed a rebound in this fiscal from the major port, helping it to log 18 per cent growth by the end of December. Iron ore exports from the country touched 18 MnT in calendar 2016, a six-fold rise over the previous year. Pellet exports also moved up sharply from 0.8 MnT in 2015 to 5.7 MnT in 2016.
At the latest round of auctions, the highest bid submitted for iron ore plots is Rs 1258 per sq metre, 70 times higher than the bid of Rs 17 per sq metre in April 2016. This massive increase in price of the plots is going to have a bearing on exports of iron ore and pellets given the volatile nature of global iron ore trade.
While the success at the auctions may have enthused the authorities of Paradip Port Trust (PPT), the rates for the iron ore plots are unsustainable and would especially impact the export business.
“Earning more money is fine but doing so putting development and future of industrialization of the state at stake cannot be considered prudent by any measure”, said B S Pani, an industry expert.
The rate of Rs 1258 per sq metre for 5000 sq metre plot for 11 months would mean immediate cash impact of around Rs seven crore. The minimum guaranteed traffic for this auction was around 0.18 million tonne over 11 months which would mean an impact of around Rs 380 per tonne. Considering that international iron ore market is very volatile, these rates are not sustainable. This, in the future may jeopardise exports if global iron ore prices start plunging.
A PPT official, however, said, the aggressive bid will not have any bearing on export business of iron ore.
“This is the normal bidding process. The price has been quoted by the bidders and the port authorities have no role in the process. We don’t think this will have any impact on the export of iron ore”, he said.
Earlier, PPT used to conduct separate auctions for plots meant for iron ore and iron ore pellets. In April 2016, it auctioned 10 mechanical plots of 5000 sq metre each and 10 manual plots of 3000 sq metre each for iron ore and received the highest bid of Rs 63 per sq metre per month for manual plot and Rs 17 per sq metre per month for mechanical plot. Similarly for iron ore pellets, the auction was held for mechanical plots during Sept-Oct 2016 and the highest bid received was Rs 43 per sq metre per month for seven plots of 5000 sq metre each.
Later, in November 2016, PPT authorities decided to combine the auction for plots for iron ore and iron ore pellets. The auction notification was given on November 19, 2016 and the first round of technical bid was submitted on December 9. While the auction got delayed by almost a month for unknown reasons, the number of plots were also reduced from seven to six just a couple of days before bidding. In spite of these series of events and reduced number of plots, the auction witnessed aggressive bidding with 21 applicants, out of which 19 qualified in the technical bid round. The forward auction opened at bid price of Rs 62.5 per sq metre per month and the highest bid submitted was Rs 1258 per sq metre.
Industries are sulking over PPT’s decision to have common plots for both iron ore and iron ore pellets. Low grade iron ore is usually blended with high grade ore to make it usable whereas pellets are value added products which enhance productivity of steel mills. Both commodities are governed by disparate international prices, sea freight and demand supply dynamics and hence cannot be clubbed together, they reasoned.
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