A Study on NMDC Bailadila Mines for Increasing Iron ore Availability to Domestic Customers

Background

The Government of India recently approved NMDC’s long term agreement for supply of iron ore to South Korea & Japan through MMTC for another 5 years. The quantity to be exported shall be in the range of 3.80 MnTPA to 5.50 MnTPA which comprises maximum export quantity of Bailadila Lumps at 1.81 MnTPA and Fines at 2.71 MnTPA totaling 4.52 MnTPA. NMDC shall be paying MMTC a trade margin of 2.8% on FOB price.

The current level of Indian Iron ore export stands at 15.64 MnT in FY18 according to data maintained by SteelMint, which includes NMDC exports of 2.6 Million tonne to Japan and South Korea. Japan and Korea remained 2nd and 3rd largest export destinations after China.

While the above arrangement is welcome step in the direction of meeting NMDC sales target of 50 MnT by 2030 as per the Vision statement prepared by NMDC it requires many more steps and action points on behalf of NMDC to reach this ambitious target. India being the fastest growing steel producing country with targeted production of 300 MnTPA by 2030, focus of all Iron ore miners should move from Export oriented sales to Domestic sales to the existing Steel/ Sponge / Pig Iron producers.

Shift in sales strategy required by Iron ore producers including NMDC

With the captive Iron ore mines being allocated to major steel producers like Essar and JSW and also commencement of Iron ore mining from these mines so the Iron ore marketing and sales scenario is slated to undergo a paradigm shift in near future. Till now, Iron ore merchant miners have more or less enjoyed the “Seller’s market” condition wherein the despatches and sales have been governed by the requirement of customers, meaning it has been customer’s responsibility to “offtake” Iron ore.

This situation is likely to change for Iron ore producing companies. If they have to grow their despatches and sales, it is felt, they need to shift their marketing strategy to be more pro-active and customer oriented.

In this regard, an attempt is made to study the supply pattern of NMDC Bailadila mines and how it can be improved so that the world renowned quality Iron ore is easily accessible to the ever increasing domestic end users for the mutual benefit of both.

Case study- NMDC Bailadila mines:

What is the current Iron ore evacuation capacity from NMDC Bailadila mines ?

Following are the 4 modes of evacuating Iron ore from its Bailadila mines:

a) Railway (K- K line)- destination Vizag/ Gangavaram port
b) Railway (K- K line)- destination Bade Arapur
c) Road- destination- Vizag/ Raipur/ Bilaspur
d) Essar Slurry pipeline

The current evacuation capacity of NMDC basis the above 5 modes is as given below.

NMDC has been making efforts in increasing the Iron ore sales from Bailadila mines through rakes, however against the given capacity of 33-36 MnTPA max, the despatches from NMDC Bailadila mines is in the range of 23 MnTPA, which is stagnant for the past 2 years.

What can NMDC do to increase the Dispatch and Sales from its Bailadila mines?

The answer lies in following steps:

a) Increasing the Domestic customer base – NMDC may tap into the markets in Andhra Pradesh, Chhattisgarh, Tamilnadu and Gujarat, wherein many of Iron ore consumers are forced to import Iron ore either standalone basis or in consortium. This can be achieved by pro-active marketing steps by understanding the requirement of customers.

b) Increasing the number of sale points – NMDC may look into creating Stock yards at Jagdalpur/ Raipur/ Vizag/ Chennai/ Kandla for “on the spot” sales as being done by many Raw material miners/ producers.

Target customers: Raipur/ Vizag/ Chennai based Pig/ Sponge Iron producers

c) Change in the method of sales – NMDC may diversify in sales methodology from traditional FOR mines sales to Stock yard based Spot sales or Ex- Vizag plot/ FOB Vizag sales.

Target customers: KIOCL, JSW Dolvi, Essar, Gujarat based Sponge iron / foundary producers.

d) Go for stock and sales at customers’ location – As an ultimate aim for Customer satisfaction, NMDC may consider sales of Iron ore on “Door delivered” basis- NMDC may charge premium pricing for this sales methodology.

This sales methodology is already adopted by Bentonite producers like Ashapura.

Status of Dispatch and Sales of Baila Lump from Kirandul mines – The following table will show, one of the products, Baila lump has not been selling from Kirandul even if targeted dispatch is reduced by NMDC from 2.7 MnT during FY 2016-17 to 1.8 MnT during FY 2017-18, the sales/ dispatches has in fact reduced from 1.6 Mn T to 1.5 Mn T in FY 2017-18:

Though the typical Fe content in Baila lump is >66.5% as against guaranteed Fe 65.5%, the reasons attributed to quality deficiency of Baila lump is as follows as a result of which Chhattisgarh based Sponge Iron producers have stopped lifting this products:

a) Low Tumbler Index 75-80%
b) High abrasion index 10-12%
c) High RDI- 18-22%

What can NMDC do to increase the Despatch and Sales of Baila Lump from Kirandul mines?

1. Transport the Baila lump to Vizag
2. Screen the under size at Vizag screening facility
3. Offer Screened Lumps for sales on Ex- Vizag plot/ FOB Vizag basis

Tangible benefits to NMDC:

1. Increase in despatch and sales of Baila Lump
2. Continuous evacuation of Baila Lump leading to space creation at Kirandul and increased Fines stacking/ blending space at Kirandul
3. Increased production of Fines at Kirandul- for every 1 tonne of Baila lump evacuation, NMDC Kirandul mines can increase production of 3 tonnes of Iron ore
4. Increased availability of both Lump and Fines for Export/ domestic sales
5. Higher revenue generation both from Lump and Fines sales

Tangible benefits to Railway:

1. Year-long rake movement on continuous and assured basis- even in lean demand period
2. Non dependence on NMDC customers rake requirement
3. Assured rake movement during monsoon months
4. Faster turnover of rakes during monsoon months

Tangible benefits to Port:

1. Utilisation of Port plot area ear-marked for NMDC export
2. Higher tonnage due to both domestic and export sales of Baila Lump
3. Assured rake movement during monsoon months
4. Avoidance of Tippling issues during monsoon months

Tangible benefits to Customers:

1. Easy and ready availability of material to be shipped out
2. Screened product availability having better quality
3. Timely delivery of quality product by NMDC

Intangible benefits to NMDC:

1. Utilisation of idle rake movement capacity of K-K line during monsoon months
2. Utilisation of idle Screening capacity at Vizag
3. Utilisation of idle port plot areas
4. Generated fines can be utilized for Export / domestic sales
5. Customer satisfaction for timely delivery of better quality product

Conclusion: – Based on the above scenario which is shown for one product from one mine, sales strategy on similar lines can be devised for other products not only from NMDC mines but from other Orissa based mines so that Iron ore availability in required quantity and of required quality is made easily accessible to the domestic steel, sponge, pig iron industry, which would help India achieve its targeted production of 300 MTPA by 2030.

Author is an ex – NMDC & presently working with private steel firm, views expressed is author’s own