Iron ore prices likely to bounce back in H2FY21, expected to gain 15%

Recovery in domestic iron ore prices would be propelled by demand uptick as steel makers are expected to ramp up capacity utilisation with concerns easing on the Covid-19 pandemic

Despite the Covid-19 pandemic, the country’s iron prices are projected to bounce back in the second half (H2) of this financial year. 

Currently depressed, iron ore prices are slated to gain 15 per cent (Rs 350 per tonne), according to a forecast by brokerage firm Motilal Oswal. 

After a recent price correction (on May 9), NMDC’s iron ore fines are priced at Rs 1,960 per tonne, whereas lumps would be available for Rs 2,250 per tonne.

Iron ore prices of Odisha Mining Corporation (OMC) are in the range of Rs 1,700-2,452/tonne while lumps can be procured anywhere between Rs 2,380 and Rs 3,439 per tonne depending on the ore grade. Both NMDC and OMC are state-controlled merchant miners, supplying to end use industries.

In the first half (H1) or during April-September, prices of the key steel-making ingredient are expected to remain subdued due to lacklustre demand. 

Most steel mills across the country are running below their nameplate capacities. Moreover, secondary steel producers that faced shutdown because of the lockdown 1.0 in March have restarted activity only in May.

Recovery in domestic iron ore prices would be propelled by demand uptick as steelmakers are expected to ramp up capacity utilisation with easing concerns on the Covid-19 pandemic. Also, September would also mark close of the liquidation period for clearing accumulated iron ore by merchant miners. Some leading merchant miners, such as Essel Mining & Industries and Rungta Mines, lost most operative leases to frenetic bidding at Odisha’s auctions.

The lease validity of these merchant mines expired on March 31. Before the lease tenure drew to a close, the Odisha government had successfully organised online auctions of 21 iron ore, manganese ore and chromite blocks. Though letters of intent (LoIs) have been awarded to all successful bidders at electronic auctions, the mines haven’t been able to recommence for want of vesting order from the state authorities. 

But, on the ground, there is an anticipated delay in restarting merchant mines. Bureaucratic procedures in Odisha, a state accounting for over half of the nation’s iron ore, have been slowed by efforts to contain the spread of the deadly contagion.

“There is no activity on merchant mines now. Mining is being carried out at the captive leases of players like Tata Steel and Steel Authority of India (SAIL). Even after we obtain all formal orders, it would be difficult to gain back the momentum. Our workforce has flocked to their native places,” said a standalone miner.

Slump in iron ore demand has roiled big miners like NMDC. Its iron ore volumes in April 2020 tanked 49 per cent year-on-year to 1.38 million tonnes, forcing the public sector miner to slash prices by Rs 500 per tonne.