Domestic steel industry feels the heat of iron ore price rise

Steel industry margins have come under pressure owing to high cost of iron ore

Rising prices of iron ore are adding to the misery of steel industry, already facing acute shortage of the raw material in Karnataka. The steel industry margins have come under pressure owing to the high cost of iron ore.

The landed cost of iron ore purchased at e-auctions has gone up an average 54 per cent at Rs 5,700 a tonne for 61-62 per cent Fe grade compared to Rs 3,700 per tonne a year ago. Similarly, the prices of 63 per cent Fe grade iron ore are currently sold at a base price of Rs 3,800-4,000 a tonne. In addition to base price, the buyers will have to pay 22 per cent taxes in the form of royalty and forest development tax (FDT) and transportation cost to their steel mills.

“Compared to Karnataka, the prices of similar grade iron ore is available at Rs 1,800-2,000 per tonne in Odisha, where there is no forest development tax and the royalty is paid by miners. Earlier, miners paid the royalty and FDT too. But, now it is transferred to steel mills, which is adding to our cost of operation,” said Seshagiri Rao, joint managing director, JSW Steel.   NMDC is charging Rs 2,610-2,800 a tonne for their 62.5-63 per cent Fe grade iron ore in Chhattisgarh.

Rao said the miners are charging around 40 per cent premium on the base price for their ore sold in the e-auctions. “We are facing severe shortage of iron ore in Karnataka and over that the miners are charging hefty premium for their ore. Unless the market forces come into operation, it is very difficult to procure iron ore,” he said.

R K Goyal, managing director, Kalyani Steel, said they were forced to operate at little over 50 per cent of the capacity due to shortage of iron ore.

“The situation of steel companies is bad in the state as they are faced with multiple problems like lack of iron ore and high prices at e-auctions. The landed cost of iron ore purchased at e-auctions works out at Rs 5,700 per tonne as against Rs 4,000 a year ago. We are operating at lower capacity to manage the situation,” he said.

The steel industry representatives are meeting the Central Empowered Committee (CEC) of the Supreme Court in Bangalore on Friday to air their grievances.

Meanwhile, the availability of iron ore is pegged at 14 million tonnes for the current fiscal. This is expected to go up to 22 million tonnes next year, provided NMDC increases its production and many other mines open up. Currently, only 15 mines are operational in the state with an annual production of 5.5 million tonnes.

JSW Steel, the single largest steel maker in the state, is currently sourcing around three million tonnes from Odisha. The company’s capacity utilisation is around 80 per cent for the current financial year, Rao added.