- Increasing shift toward contract sales
- Sales by NMDC at e-auctions drop over 30%
- Miners report declining stocks ahead of fiscal year-end
Iron ore sales via e-auctions in Karnataka dropped 27% m-o-m to 1.28 million tonnes (mnt) in February 2023 from 1.75 mnt in January, as per SteelMint data. Sales volumes had decreased by 20% on the month in January compared to 2.18 mnt in December.
Why are iron ore sales at auctions declining?
Sources informed SteelMint that sales at e-auctions in Karnataka are edging down as preference is increasing for direct sales. It deserves mention that the Supreme Court in May last year lifted restrictions on iron ore sales in Karnataka, allowing both contract sales as well as auctions replacing the older system of e-auctions conducted by the court-appointed Monitoring Committee. The verdict also allowed free exports of iron ore and pellets from the state.
Although auctions ensure a fair and transparent mechanism of price discovery, contract sales offer buyers the assurance of fixed and stable supply. With the easing of sales restrictions, direct/contract sales have gained ground.
Notably, post SC verdict, iron ore sales in Karnataka dropped 27% y-o-y in 2022. Sales (including estimated direct sales) stood at 22.6 mnt in 2022 against 30.9 mnt in 2021.
Another reason why sales at auctions fell in February was declining stocks with miners ahead of the fiscal year-end, as mining companies stick to their production and dispatch targets for the financial year.
In addition, iron ore exports have also increased after the government removed the 50% export duty in November last year. Amid surging global iron ore prices, exports have gained momentum more than domestic sales. Exports of iron ore and pellets from India climbed to a 20-month high of over 3.8 mnt in February. Export sales increased by over 10% m-o-m compared with 3.4 mnt in January.
However, sources informed that miners are still finding it difficult to make proper price discovery. IBM’s average sale prices are issued after a delay of 2-3 months and so miners are left to their devices to discover and sell at a certain price each month and then adjust accordingly. This has added to confusion. Furthermore, during the previous Monitoring Committee regime, inspection of Fe% used to happen prior to e-auctions but now it happens after e-auctions leading to delay in declaration of base price. Lessees are at the discretion of DMG and FD.
Auction highlights
NMDC’s sales decrease – Sales by NMDC, India’s top iron ore miner, in February stood at 712,000 t, down sharply by 33% m-o-m from 1.07 mnt in January. While the miner sold 456,000 t of iron ore fines at e-auctions, total sales of lump ore stood at 256,000 t during the month.
NMDC has floated an EoI for empanelment of long-term agreement (LTA) customers in Karnataka after the apex court paved the way for direct sales of iron ore. Around 90% of sales will be through LTAs and the remaining 10% through e-auctions.
NMDC’s iron ore production in Karnataka is expected to be around 12 mnt in FY23. Production in FY22 was 12.2 mnt.
Other miners
Iron ore sales from the second leading miner, KSMCL, increased by 1.5% on-month to 319,000 t in February from 314,000 t a month ago. KSMCL sold 242,000 t fines and 77,000 t of lumps.
Iron ore sales by the other leading miner, Vedanta, fell by 7% m-o-m to 104,000 t in February against 112,000 t in January. Vedanta’s entire quantity of 104,000 t was iron ore lumps. SMIORE sold 85,000 t compared with 74,000 t in January.
Prices edge up
The monthly weighted average price of iron ore fines increased by INR 700/t m-o-m in February. Prices have risen by around INR 800/t since December, despite growth in production, parallelly with firm domestic demand, resumption of exports and strong global iron ore prices.
SteelMint estimates Karnataka’s iron ore output to fall to around 36 mnt in the ongoing fiscal from over 40 mnt in FY’22. Iron ore production has fallen by almost 8% y-o-y in 2022 to 35.15 mnt against 38.35 mnt in 2021.
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