How will NMDC’s iron ore prices trend in May, 2022?

Morning Brief: NMDC is likely to either lower its iron ore prices in May or roll over the current month’s, as per SteelMint’s latest assessment. SteelMint’s latest forecasting is based on analysis of data from over the last five years, and which are highly correlated with India’s largest miner’s iron ore price trends.

New assessment launched

SteelMint has started a new feature of predictive analysis, where correlation between certain “predictors”/parameters/market or price influencers give an indication of future price movements of a particular commodity.

Methodology

How is the forecasting arrived at?

SteelMint has studied NMDC’s price data for the last five years to identify 21 parameters/ influencers which, it feels, are highly correlated, directly or indirectly, with its iron ore price movements.

Interestingly, these 21 price-influencers are not necessarily iron ore consuming sectors but competing raw materials like sponge iron, and even semi-finished and finished prices, as well as domestic and global demand-supply dynamics, along with NMDC’s own production, dispatches, inventories and other parameters.

Data reveals that if the price/demand scenario changes for the maximum of these 21 parameters, NMDC accordingly takes a call on its pricing. May’s price forecasting shows that of the 21 parameters, 14 have shown a price downtrend and seven, an uptrend while 19 have high correlation.

The data also reveals that some of the parameters are highly correlated with NMDC’s price movements. The prices have been influenced by domestic iron ore prices especially other private merchant miners, global iron ore prices, Indian pellet, sponge and pig iron indices as well as the Indian composite steel index.

SteelMint has not just undertaken price predictions for May, but from January till April, 2022 too. In the case of all the past four months, the assessments were almost similar with negligible variations of plus-minus up to INR 300/t.

Thus, a possible conclusion can be drawn that steel as a commodity follows the linear regression model where one segment’s price movement is replicated in the other segment too — from raw material to finished items.

Sponge iron prices are influenced by iron ore prices too and are usually announced after NMDC’s monthly auctions. The latest auction was held on April 28, but received a subdued response and whatever quantity was sold, was done at the base price.

However, it may be mentioned that while the predictions have closely followed actual prices, the latter may vary a bit, depending on various market dynamics.

Incidentally, NMDC is India’s largest producer of iron ore with over 42 million tonnes (mnt) of production and sales of almost 41 mnt in FY21-22. It owns mines in Chhattisgarh and Karnataka.