On 08 Aug’16, the State Cabinet allowed state-run miner OMC, to export iron ore from now onwards in order to help the miner to clear recent stockpiles and meet its revised ore production target for the year.
State government asks OMC to enhance iron ore production
The state government has ask OMC to enhance iron ore production for the year. The company has set a target of about 8.64 MnT of ore in 2016-2017. By July end, the company produced around 2.45 MnT iron ore.
Currently, the company follows only two routes to sell ore:
- Through monthly e-auctions
- Through long-term linkage contracts
Now, the state government has given one more provision to dispose of iron ore through exports. Also, the company can sell their material to anyone of the interested party looking for OMC material. It will not be restricted to any the above-mentioned routes.
SteelMint in talk with senior company official learned that the government has amended the current linkage policy with the addition of one more provision to sale their material through exports rather than selling company’s material through e-auction as well as to long-term linkage parties only.
In addition, as per reports, Tata Steel to benefit from OMC revised iron ore linkage policy as companies with captive mine leases can enter into the long-term agreement with OMC to meet their raw material requirement subject to the extent of their shortfall.
Will current higher global iron ore prices benefit OMC to export iron ore?
As we all know that, currently global iron ore prices are on the higher node. Prices are at USD 61/MT, CFR China. Although this is a good time for Indian exporters to export iron ore as global market is positive, the government decision to allow OMC for iron ore exports may not remain lucrative.
As OMC’s mines namely Daitari, Gandhamardan, Barbil and Koira mines are located very internally, the logistics cost remain always high for any buyer. Currently, the logistic cost for the material to be moved from these mines would come around INR 1,300-1,500/MT, which is generally around INR 800-1,000/MT for any other Odisha-based exporter.
In addition, exports will also not remain lucrative due to prevailing 30% export duty on high-grade iron ore.
If the global iron ore prices will move up further, exporting iron ore for OMC may become beneficial in the coming term.
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