India: OMC iron ore fines auction response subdued on falling domestic pellet prices

State PSU miner Odisha Mining Corporation (OMC) had scheduled an iron ore fines e-auction today. OMC fetched bids for only 24,000 tonnes (t) of material out of a total of 866,000 t put to auction. Out of the total booked quantity, 19,000 t was booked from Gandhamardan mines and the remaining from Koira mines for sub-grade ore.

The bids fetched were at the base price. Notably, the miner had decreased the base price for high-grade iron ore fines by up to INR 700/t, while prices for low-grade material slumped by INR 1,350/t as against OMC’s Jul’21 auction.

OMC iron ore e-auction prices

Base prices in INR/t on ex-mines basis; including royalty 
Qty in t 
Source: SteelMint Research

Factors behind limited participation

1. Domestic pellet offers hovering at over 4-months low:Domestic pellet prices in India have come under pressure as players have turned aggressive in domestic sales with export bookings having dried up. Domestic pellet offers have corrected by around INR 1,000-1,500/t in central and eastern India in a month’s time.Pellet offers in Raipur are currently hovering at INR 12,000-12,300/t exw for Fe 63% grade.SteelMint’s pellet export index (Fe 64%, 3% Al,FoB east coast) declined $8/t w-o-w to $148/t assessed on 18 Aug’21.No trades were heard for about a month.This is mostly due to tighter pollution control measures and steel production cuts in China.
2. Falling global iron ore prices:The bookings have fallen amid falling global iron ore prices.The Fe 62% fines index dropped from $162.5/t, CNF China towards the beginning of last week to $139.10/t, CNF China by the weekend.Bearish sentiments in the Chinese steel market, a weak demand outlook and falling iron ore futures have collectively dragged spot prices down. As per market sources, downstream steel demand in China has softened amidst expectations of tight production curbs in the coming months.Also, SteelMint’s weekly export index for low-grade Indian iron ore fines (Fe 57%) decreased by $11/t w-o-w to $46/t FoB east coast India assessed on 19 Aug’21.
3. Disparity in prices of miners:Few trade sources highlighted that the base price of the iron ore fines put to auction were at a disparity to the prevailing market price. The base price for the Koira-based sub-grade fines (Fe 58%) was set at INR 5,800/t ex-mines as against the prevailing market rate of about INR 2,800-2,900/t ex-mines.
4. Expected decline in iron ore offers by merchant miners:Market participants are of the opinion that Odisha-based merchant miners may lower their offers anytime soon on limited bookings at previous offers and fall in pellet prices.SteelMint’s weekly Odisha iron ore fines (Fe 62%) index has fallen by INR 1,100/t m-o-m to INR 8,100/t (ex-mines, including royalty, DMF and NMET) as assessed on 21 Aug’21.

With 13.30 mn t of iron ore production in FY’21, OMC had emerged as the leading merchant miner in Odisha. OMC reserves about 30% of its annual production for auctions, with the rest earmarked for long-term linkage customers.