- Odisha prices down 9-13% from Mar-Apr levels
- Domestic pellet prices drop to 5-month low
- Steel prices fall on weak demand outlook, inflation
- NMDC may cut prices for June
Iron ore prices in India have tumbled to a three-month low on falling domestic metallics and steel prices and a bearish demand and price outlook globally even as domestic market sources are expecting a further correction in prices in the near term, as per SteelMint assessment.
Iron ore prices in Odisha, a state that accounts for more than 55% of India’s iron ore production, are sliding. SteelMint’s Odisha iron ore fines (Fe 62%) index dropped 9% m-o-m to INR 5,550/t (ex-mines) on 17 May’22 from INR 5,890/t in Apr. Prices had slid to below INR 5,000/t levels in Dec-Jan, but the recent fall has been significant given the fact that prices have fallen more than 13% compared with Mar levels.
Notably, state-run miner OMC has decreased the base prices for its iron ore auction slated for today up to INR 800/t for fines and up to INR 450/t for lump ore as against the last auction on 18 Apr. Around 876,000 t of lump and 1.23 million tonnes (mnt) of fines will be put up for auction from OMC’s mines in Odisha.
Coal prices hit DRI producers
Domestic DRI manufacturers are at the receiving end due to record high coal prices which is impacting capacity utilization of sponge iron kilns. Preferred high-calorific value imported thermal coal prices are trending at historic high levels of INR 22,000-23,000/t amid lack of supplies by Coal India Ltd. (CIL) for the domestic non-power sector. Premiums at recent auctions held by CIL subsidiaries have risen as high as 450-500%.
Nearly 27 mnt of India’s merchant sponge iron capacity is coal based and these manufacturers have curtailed production due to high coal prices.
Unviable production costs impacting capacity utilization of DRI producers mean that iron ore sourcing by sponge iron producers has taken a hit.
Central India-based sponge iron producers having to deal with volatile iron ore prices have pitched for quarterly price revisions of DR-grade iron ore lump by the country’s leading miner NMDC instead of the usual monthly revisions in a bid to tackle volatility.
Pellet prices slump
Another key factor weighing on iron ore prices is the significant decline in domestic pellet prices. Generally, lower Chinese buying due to stringent lockdowns in that country has weighed on Indian pellet exports, which in turn, has impacted domestic pellet prices falling to a five-month low.
SteelMint’s domestic pellet (Fe63%) index edged lower to INR 10,400/t DAP Raipur on 14 May – the lowest level seen since Dec’21. Assessment shows that the index has dropped by 14% m-o-m from weighted average prices for Apr that hovered around INR 12,000/t.
Elsewhere, prices in other key markets such as Barbil in Odisha and Durgapur in West Bengal have declined by around INR 650/t w-o-w. The decline in pellet prices, due mainly to sliding sponge iron and semi-finished steel prices, have affected iron ore prices.
Subdued export sentiments have further affected prices, with shipments falling 10% m-o-m in April on weak steel demand in China amid shrinking steel margins.
Sponge, steel prices slide
To put it in perspective, domestic pellet-based sponge iron (PDRI) prices have fallen 10% m-o-m to INR 34,850/t exw Raipur in mid-May. The gradual downslide in prices is apparent: sponge prices in central India have dropped nearly 15% from Mar levels. Similarly, lump-based sponge prices in Odisha’s Rourkela have slipped to INR 35,500/t exw from over INR 40,000/t in end-Mar.
In the same token, steel prices have started correcting downwards on declining global prices in an inflationary environment and subdued domestic demand due to elevated products prices. SteelMint’s India steel composite index declined for the fifth week in a row last weekend on muted trading as trade-level prices sank lower than list prices of mills on weak buying sentiment.
This, despite the fact that integrated steel producers had slashed steel prices earlier this month. However, lower procurement due to steep prices weighed on sales of both integrated and induction furnace steel producers.
Our assessment reveals that domestic HRC prices – the bellwether of the steel market – have dropped over INR 5,000/t m-o-m to INR 71,400/t ex-yard Mumbai last week. Iron ore prices are lacking support due to declining domestic steel prices.
On the other hand, domestic ore prices are sinking, in part, due to the downtrend in global iron ore prices. Benchmark Australian iron ore fines (Fe62%) prices had fallen to under $130/t CFR China of late from over $160/t in the first week of Apr. Iron ore prices have taken a beating due to the stringent COVID-induced lockdowns in China and the direct impact on manufacturing and construction activities.
Supplies pick up
Moreover, the domestic iron ore supply scenario has changed over the past year and a half. Supply has returned to the market after companies that won mine blocks in the Odisha mineral block auctions in 2020 have raised output from the auctioned blocks. State-owned mineral producers too have raised production levels after bagging new mines, operationalising existing mines and renewing licenses for operation. Higher supplies have gone some way in stabilising domestic ore prices.
Monthly iron ore production volumes have climbed higher in 2022 compared with Q4 2021. India’s iron ore production rose by over 20% y-o-y to a record high of more than 250 mnt in FY’22 compared with the previous fiscal.
Will NMDC cut prices?
In these circumstances, it is expected that NMDC may revise iron ore prices downwards in its monthly price revision due sometime in end-May. The state-owned miner had rolled over prices for May.
SteelMint has recently 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.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.
The predictive price estimation is based on data metrics and co-relations that impact the company’s pricing decision such as domestic and global iron ore prices, prices of metallics as well as domestic semi-finished and finished steel.
As all the top 7 parameters are reflecting a downtrend at present, it can be assumed that NMDC is most likely to reduce iron ore prices for June dispatches.
SteelMint understands that iron ore prices are less likely to see sharp correction from current levels. This is because the domestic iron ore cost structure has changed in such a way after the Odisha auctions in 2020 that the lessees of the auctioned mines are required to pay a premium of on average 100% of the market price.
Moreover, global iron ore prices are expected to recover as China emerges out of the lockdown in Jun, with the government likely to opt for fiscal stimulus to revive construction activity and the property market.
Leave a Reply