Govt asks NMDC to charge global prices for iron ore

The government has directed the National Mineral Development Corporation (NMDC) to charge international prices for iron ore from private sector integrated steel producers such as Essar Steel, Ispat Industries and Jindal Vijaynagar.

While international iron ore prices are at around $70 per tonne, NMDC is supplying at around $20 per tonne.

According to industry analysts, if NMDC switches to international prices for its iron ore, the prices of these companies' products could go up by as much as Rs 3,600 per tonne.

In a letter to NMDC, the Union Steel Ministry has asked the company to adopt a dual pricing policy, charging international prices from private integrated steel producers and a lower price from public sector companies.

The ministry has argued that companies like Essar Steel & Jindal Vijaynagar have been reaping super normal profits by exporting steel, while public sector companies have often been restrained from exporting in order to meet the domestic demand.

"Private sector units are under no social obligation to control prices and are free to export their products. Hence, for the sake of level-playing field, prices of such PSUs may be fixed at a lower level than for private customers," said the letter.

The ministry wants that NMDC should charge international spot prices for iron ore and revise it on a monthly or shipment basis.

When contacted, a top Essar Steel functionary said that the company has a 25 year contract with NMDC for supply of iron ore, though prices are fixed every year in April in line with international prices of iron ore.

"Even if NMDC decides to hike prices, it will come into effect only in April this year," he said.

"NMDC decides prices in a very transparent way and there is no question of one section of the industry benefiting at the expense of another," added an Ispat Industries official.

Interestingly, the dual pricing would not impact in any way the country's two largest steel producers, Steel Authority of India Ltd and Tata Steel, both of which source iron ore from their own captive mines.

So far, the NMDC has not taken any action on the steel ministry's letter. NMDC sources said that no meeting of the company's board has been convened to take a decision on the issue.