National Mineral Index a likely solution to keep steel prices reasonable

Diversity in grade quality could make index formation difficult, say industry officials

Introduction of a National Mineral Index for iron ore, the key raw material used in the making of steel, is a plausible solution to keep domestic steel prices reasonable amid rise in demand as consumption is seen growing given the thrust on government infrastructure projects.

Domestic steel prices have been rising relentlessly since Apr-June quarter of 2020.

As per Crisil Research’s quarterly domestic hot-rolled coil prices indexed, the index has jumped to 186 levels in Jul-Sep CY21 from 106 level in Apr-Jun quarter CY20. The index is based at 100 with timeline starting Q4 CY19. (see chart)

While the iron ore price trend is not the sole factor that governs domestic steel prices, it is one of the key input materials along with coking coal which forms nearly 40-50 percent of the total cost of production of the alloy.

“Currently, there are some anomalies in iron ore pricing system that need to be eliminated. The IBM (Indian Bureau of Mines) at present calculates ore prices inclusive of royalties paid. This pushes up ore prices in turn inflating pricing of entire value chain. Even auction premium which is based on ore prices then gets inflated, impacting end consumer,” Arnab Kumar Hazra, deputy secretary general at Indian Steel Association told Business Standard.

Nearly half the domestic steel industry is comprised of secondary steel producers which do not have captive ore supply and rely on auctioned ore.

However, the National Mineral Index is expected to benefit even captive producers since there will be a benchmark price available in the market.

“A mineral index for India iron ore market will bring not just transparency to customers but it will also be a mature marketing practice for India market. The way India market is growing we need to have our own mineral index instead of following the Chinese or Singapore Index at times,” said V.R. Sharma, managing director at Jindal Steel & Power (JSPL).

Domestic steel market comprises various metal mandi (markets) such as Gobindgarh, Mumbai, Ludhiana which have a lot of metal, scrap related news and information to be disseminated on a daily basis, said industry officials.

“It is time we put all pieces of information together for it to reflect via an index. It will bind all markets across the country in the right manner,” added Sharma.

Tata Steel, state-owned Steel Authority of India (SAIL), AM/NS and Sajjan Jindal-led JSW Steel are among the top primary steel producers in the country with captive iron ore sources.

Though introduction of a mineral index seems like the next best step for the domestic steel industry to be in line with the National Steel Policy, 2017 to have raw material efficient steel production, some industry officials see it far-fetched.  

“The diversity of ore quality is way too high in India even for the same grade of ferrous content. In such a scenario, it is going to be difficult to have an index for the ore based on Fe-content alone,” said R.K. Goyal, managing director of Kalyani Steels. The company is a secondary as well as primary steel producer with facilities in Karnataka.    

For instance, for the same grade of iron ore say Fe-content 60, the quality of ore in Odisha is far different from that in Karnataka and hence pricing of the two cannot be same or averaged, explained Goyal.

Alongside, the Indian Steel Association is actively looking to have the National Mineral Index for the domestic iron ore market to set the stage right for the steel industry which looks to have a production of 300 million tonne by 2030 as per the National Steel Policy 2017.