Companies say reserve price for Karnataka iron ore e-auction, allowed by the Supreme Court, is too high
Private firms have been barred for the time being from mining in Karnataka’s main ore regions. The Supreme Court, on August 6, allowed state-owned NMDC to mine a million tonnes of iron ore every month for the local industry. It later allowed an e-auction of 1.5 mt of ore from stocks at the mines.
The Bangalore Chamber of Industry and Commerce (BCIC) has expressed displeasure on Wednesday’s reserve price, terming it “arbitrary”. “The reserve price disregarded the prevailing market prices for similar grades,” it said.
The auction will be done every Wednesday. The grades auctioned this week mostly contained 63 per cent iron content, considered high-quality ore. The base price for this ore was set at Rs 3,700 per tonne, as against the market price of Rs 3,500 per tonne and it fetched up to Rs 5,800 per tonne at the auction, an appreciation of over 50 per cent. The base price for ore fines, low in iron content, was Rs 2,700 at the auction.
Differing with industry views, H R Srinivasa, director, department of mines and geology, government of Karnataka said, “We took into account the prevailing prices in the Chinese market and compared with that of Mysore Minerals Ltd and NMDC before arriving at the base price, which was much lower compared to all these prices. We would be taking note of the Chinese prices every Monday and hold the auctions on Wednesday, three times a month.”
More From This Section
Another official closely following the auction said, “Ore in Bellary, Hospet and Sandur regions are generally high-quality ore and that was auctioned on Wednesday. The entire 400,000 tonnes got over soon, as there is demand for it.”
The BCIC said, “Unfortunately, while the industry awaited the e-auction eagerly, the arbitrary fixation of reserve price for low-grade iron ore deterred steel companies from bidding.” Vinod Nowal, director & CEO of JSW Steel is currently president of BCIC.
BCIC further alleged, “The reserve price fixed for low-grade iron ore is higher by around 75 per cent, relative to the recently auctioned iron ore price for similar grades in the e-auction by NMDC through MSTC.”
And, “In a recently held auction of low-grade iron ore by NMDC through MSTC, it was sold at Rs 1,410 per tonne. The difference in the prices of high-grade iron ore to low-grade was Rs 1,470, for a difference of six per cent with every per cent fall in iron content. However, in the just concluded auction process, a discount of only Rs 162 was provided for every 6.1 per cent fall in iron.”
“If the industry thinks the base price was (too) high, then how did they buy 272,000 tonnes out of the 360,000 tonnes that was put on e-auction,” asked Srinivasa. Overall, the auctions witnessed a rise of 13.5 per cent on the base price and the 63-grade lumps saw a rise of 53 per cent on the base price.
“More than paying the high base price, the steel makers are worried about additional cost on account of royalty and forest development tax to be paid on the final price to the state government. On the final price arrived at the auctions, we have to pay 10 per cent royalty and 12 per cent forest development tax (FDT) to the state government. This additional 22 per cent makes the iron ore expensive for the steel companies,” a spokesperson of MSPL Ltd said.
Normally, the ore bought in the open market comes without this additional 22 per cent tax to the steel companies, as miners usually pay royalty and FDT. Industry sources say the mechanism adopted for fixing the base price for low-grade iron ore seems to be on pro-rata basis, as against the market practice.
L P Sonkar, advisor, Federation of Indian Mineral Industries said, “States will promote auctioning and e-auctioning of iron ore to get high royalty based on the highest bid. But, online sale of commodities like iron ore is not in the best interest of the industry, as the price would be determined based on the requirement of steel mills. To run the mill, one can pay any price, which others will consider a benchmark. Hence, the entire industry will be in deep trouble for its benchmark price.”
Currently, the price set by the Indian Bureau of Mines is considered the benchmark. Second, said Sonkar, the price and procurement of iron ore will also depend upon the storage capacity of miners and steel mills. It can promote cartelisation. This way, the entire industry will suffer, he said.