Rana Som, chairman and managing director of NMDC, India’s largest iron ore producer and exporter, and supplier to major steelmakers like JSW Steel, Ispat Industries and Essar Steel in the private sector, and RINL in the public sector, spoke on the slowdown in demand and hints at a mid-term price revision. Excerpts from his press conference.
Is NMDC considering a price cut?
Long-term price is benchmarked on long-term international price. NMDC’s pricing structure in the domestic market is based on long-term international benchmark with the Japanese Steel Mills (JSM), which is decided year-to-year.
Long term prices across the world is such that on 90 per cent of occasions it is lower than spot prices, but on at least 10 per cent of the occasions it is inevitable that spot prices will tend to be lower than long-term.
Our long-term agreement with domestic customers provides a clause for medium adjustment of prices in case market price fluctuates beyond 25 per cent. That will be done on the basis of market assessment by the seller (NMDC).
So last time, we had taken a decision in December that we should do a mid-term correction, but not for foreign buyers. The allegation last year was that you are not increasing prices for JSM but domestic. This year I am afraid, JSM might say that we are reducing prices for domestic.
Now, on whether we are going to reduce prices, the answer is, I decline to answer.
Is the market fluctuation now more than 20 per cent?
In terms of dollars the type of settlement we had with Japan and South Korea last week, for fines, was at $93 and the prevailing price is $63. So there has been marked reduction though not in rupee term. As on April 1, $93 the rupee was at 39-40.
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Do you have a board meeting on November 25, to discuss price revision?
We have a board meeting but I am not confirming that it’s for price revision. I cannot tell you anything before telling my customers.
We are a commercial organization, we cannot live in isolation. We are continuously discussing. Our problem is not price, but demand. That means the market is less price sensitive. If the market is not price sensitive then change in price does not stimulate demand.
What is the demand scenario?
We produce 206 million tons of iron ore of which bulk of it is exported that is because major part of iron ore production is low grade iron ore. Only a few companies produce high grade iron ore, NMDC is one of them. Our type of iron ore has got a ready demand. Even today some people want to be included as a long-term customer.
But our customers are in problem, particularly sponge iron makers. Price of scrap, which is a substitute for sponge iron, have crashed.
Steel prices are down but long product prices are started increasing. And steel prices did not drop as much as sponge iron.
What is the scenario in Japan and Korea, where NMDC supplies?
Every year they request for more than the minimum quantity. This year there was no such request.
So are they delaying shipments?
The contract is for volume so they will have to pick the material, but they would first like to liquidate stocks.
Some of your major customers (steelmakers) in the domestic market have cut production. Are they delaying lifting of material or waiting for price adjustment?
Their lifting has been very less and slow. The problem is price and demand. The dealers are not lifting material for them.
What is the outlook on price next year?
No possibility of an increase.
How would your profitability be affected?
Our profitability this year will be better than the last. In the first six months, our profits were higher than what we did last year. But there is a sluggishness in demand. It should be a temporary phenomenon. It could psychological and not long lasting. Domestic demand at the moment is a little shaky but because the problem is not external it would recover much sooner.