As NMDC hikes iron ore prices, sale of sick steel units may be hit

Suresh P Iyengar Mumbai | Updated on January 08, 2018 Published on January 02, 2018

An inside view at one of the NMDC iron ore mine.

Steel production costs are expected to go up by ₹1,300/ tonne

NMDC’s decision to hike iron ore prices by ₹500 to ₹2,760 a tonne will derail the entire process of finding a NCLT-led resolution of the bad debt accumulated by Essar Steel, Bhushan Steel, Monnet Ispat and Electrosteel Steels.

The cost of steel production is expected to go up by ₹1,100-1,300 a tonne post the hike in iron-ore prices.

The steel companies under liquidation are already finding it difficult to raise working capital to keep their plants running and any shutdown will lead to further write-downs in asset value, said the CEO of a steel company which is in race for acquiring a stressed steel firm.

The current hike in iron ore prices comes on the back of highest ever rise in 13 months effected two months back.

In November, lump iron ore price was hiked by 13 per cent to ₹2,600 a tonne, the sharpest increase since the 23 per cent jump in October last year.

Similarly, the price of iron ore fines was increased 10 per cent to ₹2,260 a tonne.

The price hike in January comes even as seven mines in Odisha are expected to shut operations as they failed to pay the penalty imposed by the Supreme Court for exceeding production limit between FY01 and FY11.

The closure of the mines is expected to reduce domestic supply by 20 million tonnes.

Bidders would definitely factor in the risk of such arbitrary iron pricing before taking a call on sick companies as steel demand has not been robust enough to allow incremental costs to be passed on to the users, said a senior executive of a steel firm.

Royalty, cess

Along with royalty and other cess, the iron ore price hike works out to ₹600 a tonne, he said.

Incidentally, coal prices has gone up from $169 a tonne to $265over the last one year.

Interestingly, NMDC has increased its exports to 18.5 million tonnes in the first three quarters of this fiscal despite higher domestic realisations of ₹2,760 a tonne against ₹2,200 a tonne earned from exports.

While NMDC may argue that the domestic iron ore prices were pegged to import parity, Rao said the right way to price a key raw material is to compare it with export realisations.

By selling iron ore at a realistic price, NMDC can support the Prime Minister’s ‘Make in India’ vision and create more jobs than exporting iron ore at a lower price and helping other countries to dump steel in India, he said.

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Published on January 02, 2018
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