 "NMDC: Better placed amid challenging environment")
NMDC's move to cut iron ore prices in May isn't surprising, and is not a reason to worry. Before price cuts, NMDC had raised prices. It had raised per wet tonne (wt) prices by Rs 150 each for lump ore and fines in March and then by another Rs 150 per wt each in April to Rs 2,100 per wt for lumps and Rs 1,860 per wt for fines. Global iron ore prices (of 62-Fe grade) had moved up from December lows of $39.6 per wt to $55 per wt in March and to over $60 per wt after that. So, price hikes by NMDC for the first time after June 2014 were understandable. 62-Fe is standard iron ore grade and indicates the portion of iron content (62 per cent) in the ore.
While these price hikes were supported by rising international prices, minimum import price (or MIP) for steel, leading to an uptick is domestic steel realisations also helped.
But iron ore prices have limited downside from here, say analysts. Compared to FY16, analysts have adjusted their FY17 expectations and have upgraded their realisation estimates.
Analysts at Edelweiss have raised their FY17 and FY18 price assumptions by 17 and 19 per cent for lumps and fines, respectively, and expect NMDC's operating performance to remain stable. Notably, NMDC has achieved sales volume of 29 million tonnes (mt) in FY16, which is estimated to increase to 31 mt in FY17.
Thus, on the whole, NMDC is better placed compared to the downturn in FY16. Also, as expected, when the steel demand picks pace, NMDC, having adequate ore supplies, will benefit. Further, improved international prices will bode well for exports as the government has already reduced export duty on higher grades of ore from 30 to 10 per cent and for lower grades (below 58 per cent iron content) to zero. The key risk is if global and domestic demand plunges from already low levels now.
NMDC is also setting up steel capacity of three mt, to come on stream by December 2017. With a good dividend history and high cash balance on books, the stock at Rs 93 now can be considered by investors for the long term.
While these price hikes were supported by rising international prices, minimum import price (or MIP) for steel, leading to an uptick is domestic steel realisations also helped.
But iron ore prices have limited downside from here, say analysts. Compared to FY16, analysts have adjusted their FY17 expectations and have upgraded their realisation estimates.
Analysts at Edelweiss have raised their FY17 and FY18 price assumptions by 17 and 19 per cent for lumps and fines, respectively, and expect NMDC's operating performance to remain stable. Notably, NMDC has achieved sales volume of 29 million tonnes (mt) in FY16, which is estimated to increase to 31 mt in FY17.
Thus, on the whole, NMDC is better placed compared to the downturn in FY16. Also, as expected, when the steel demand picks pace, NMDC, having adequate ore supplies, will benefit. Further, improved international prices will bode well for exports as the government has already reduced export duty on higher grades of ore from 30 to 10 per cent and for lower grades (below 58 per cent iron content) to zero. The key risk is if global and domestic demand plunges from already low levels now.
NMDC is also setting up steel capacity of three mt, to come on stream by December 2017. With a good dividend history and high cash balance on books, the stock at Rs 93 now can be considered by investors for the long term.