Steel makers seek minister's intervention

Fearing a further squeeze on profit margins, steel manufacturers have sought intervention of the ministry of steel in the issue of the recent “arbitrary” price increase in iron ore price by state-owned NMDC.

In a letter dated August 30, signed by Alok Chandra, chairman of the Sponge Iron Manufacturers Association (Sima), steel and sponge iron producers argued that NMDC’s price rise came even as the the price of iron ore had declined substantially in global markets. NMDC has raised iron ore prices by 8-13 per cent for domestic sales. The price of lumps with 65 per cent iron content has gone up to Rs 6,100 a tonne and fines containing less iron ore to Rs 3,000 a tonne. Domestic steel mills mostly use lumps.

This is for a consecutive quarter that NMDC has raised ore prices. Earlier, it did so by eight to 10 per cent, on increased demand and lower availability. Global prices of both ore and steel have declined severely in the past three months due to poor demand. The unfavourable economic environment has reduced demand for steel from the construction sector, owing to a drastic decline in housing demand in both the urban and rural markets.

While the benchmark iron ore price for CIF China has fallen by 30 per cent or $40 a tonne in three months, to trade currently at $95 a tonne, steel prices have fallen seven per cent during the same time.

“We fail to understand the rationale of the decision by NMDC. We strongly feel there is no transparency and the mechanism followed by NMDC in fixation of iron ore prices is flawed, arbitrary and biased,” the letter stated.

JSW Steel, Essar Steel, Jindal Steel & Power and Monnet Ispat & Energy are all part of Sima. The association has asked the minister to intervene immediately to ‘save the vital industry’.

The secondary steel producers that are badly hit due to the price rise account for half the country’s total production, an estimated 35 million tonnes (mt) of a total of 70 mt. With demand slackening for months, they say raising the price of sponge iron and steel would further reduce this, hitting their profitability. Sponge iron prices have declined by Rs 2,000 a tonne to trade at Rs 21,500 a tonne in the past two months. The price is currently around the cost of production. A further fall would mean a loss in sponge iron making, a senior industry executive said.

This is not the first such protest. In June, Essar Steel and Rashtriya Ispat Nigam Ltd approached NMDC against the price rise of ore beginning in the April quarter. Essar had urged NMDC to keep domestic prices in line with the export prices of its ore to Japanese steelmakers.

Iron ore is a key component in making steel. Its prices have been on a downward spiral over recent months, mirroring the global slowing in economies. In India, however, there has been a severe shortage of ore, due to output restrictions imposed by the government of Odisha, the ongoing ban in Karnataka; and several tax and related issues putting a curb on production in Goa. Total domestic production was down to 169 mt in 2011-12. This is expected to reduce further to 140 mt in the current financial year.

Steel makers say they are wary of taking NMDC to the Competition Commission of India on the matter. A senior official from a big manufacturer which sources ore from NMDC, said, “We have no option but to source ore from NMDC. Going to CCI will be like kicking our bread and butter. Therefore, we have approached the steel ministry for help.”

While the Supreme Court has allowed mining operations to re-commence in Karnataka, actual supply resumption would take some months. Till then, ore supply would remain tight.