OMC bids indicate Indian iron ore prices have peaked

Odisha Mining Corp (OMC)’s iron ore auctions held on 8 Jul’21 have set the tone for Indian iron ore prices, at least for the next two months. Prices of iron ore have surely peaked, and from here onwards there is little scope for any uptrend.

It may be mentioned, OMC conducted an auction of over 1 million tonnes (mn t) of iron ore from its mines, including Gandhamardan, Daitari, Koira, Jilling, Tiring Pahar and Guali. Although the entire quantity of 1.06 mn t offered got booked, interestingly, the bids dropped sharply by INR 1,100-1,950/t ($15-26/t) compared to the previous auction held in May ’21.

OMC iron ore auction summary

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

In contrast, fines (Fe 63%) prices of private merchant miners in Odisha have been rising and are ruling at above INR 10,200/t (137/t), up by INR 800/t ($11/t) m-o-m. Scarcity in availability of high grade ore and delivery issues were cited as reasons for the uptrend. However, the drop in bids has definitely surprised the market.

OMC is a state-owned and second-largest merchant miner in India after NMDC. Its expected production this fiscal is 25 million tonnes (mn t) while NMDC’s is pegged at 40 mn t.

NMDC and OMC together represent 45-50% of the merchant market share.

Reasons for low bids in OMC auctions

The decline in steel prices is weighing on iron ore prices. Overall, there was less aggressive participation, resulting in lower hike in bids.

Two regular players, Brahmani River Pellets (BRPL) and Atibir Industries were missing from the July auction. However, other key buyers like Tatas, JSPL, Orissa Metaliks, Rashmi Group, Shyam Metalics etc participated, booking good volumes.

Also, pellet offers in Barbil dropped to INR 14,500/t loaded to wagons this week, down by INR 700/t m-o-m. Also, pellet sponge P-DRI prices in Durgapur saw a decline by around INR 2,500/t m-o-m.

Implications of the low bids

• Merchant prices under pressure: The OMC auction prices are sharply lower than those of the Odisha merchant miners, putting pressure on the latter to lower their prices. OMC’s auctions are held once every two months, which means these prices are applicable for at least the next two months. These auctions are also a price discovery mechanism for OMC. Around 70% of its output is sold to long-term customers, and the balance 30% via auctions. However, the prices discovered at the auctions are applicable for long-term contracts too. Therefore, if mills can buy at a lower price from OMC then they may avoid the merchant players.
• NMDC impact: NMDC was watching out for the OMC auctions ahead of announcing its own prices for July. NMDC, has today cut iron ore prices for Jul’21 deliveries by INR 200-230/t ($3), SteelMint learnt from credible sources.

Outlook

The OMC prices are far lower by INR 2,000-3,000/t than those prevailing in the Odisha merchant market and SAIL auctions. Such levels will definitely help steel mills to improve their margins in a dull market, at least for the next two months.