 "Vinod Nowal")
Iron ore miners and steel makers in Karnataka are blaming each other for cartelization. Vinod Nowal, deputy managing director, JSW Steel Ltd and President of Karnataka Iron and Steel Manufacturers’ Association explains the stand of the steel industry to Mahesh Kulkarni. Edited excerpts:
Steel mills including JSW Steel have been buying iron ore in the e-auctions even when the prices were very high. What makes you to suddenly make allegations of cartelisation by iron ore miners?
As long as the Monitoring Committee is vested with the power to fix the price based on prevailing pan India iron ore prices, the private mining companies were restrained to hike the prices indiscriminately. Unfortunately, when the right to fix the price is shifted to private mining companies, unfair practices crept in, showing a pattern of increase in prices not aligning with the price trends in the international market nor in India nor NMDC.
Even though steel companies were buying iron ore at high bid prices earlier due to shortage, the recent pattern of unfair price fixation at Rs 5,000 per tonne by certain mining companies has left no option except to resort to certain actions against this unfair practice.
The iron ore miners have alleged that 2-3 big steel companies have formed a buyers' cartel and trying to put pressure on mining firms to reduce prices?
The bid prices have been increasing in the E-Auctions over base prices due to acute shortage of iron ore. If 2 to 3 steel companies can influence the price, the E-Auction price could be at base price only. When E-Auction bid prices are known to all which are higher than base prices, it can be conclusively said that it is mischievous and misleading to make a false allegation of forming a buyers’ cartel.
The greed to make quick money even at the cost of causing enormous damage to environment which led to mining ban with consequent pain and anguish to the steel industry, has now resurfaced by way of unfair price fixation in the E-Auction taking advantage of severe shortage of iron ore in Karnataka.
Is it true that only 3-5 steel companies buy almost 75% of the iron ore produced in Karnataka?
The Monitoring Committee has restricted the companies who can participate in the E-Auction and also restrained the participants in buying ore beyond their requirements. The mining companies are used to disseminate misleading information by saying earlier that Indian Steel companies cannot use fines and therefore they are to be exported.
Now in order to justify unfair pricing with an intention to make excessive profit at the cost of Indian economy, they are now making false allegation of cartel when the iron ore has been sold in E-Auction at a premium to the base price and when the base price itself is unfairly fixed.
Why did steel mills from Karnataka bought ore from other states and NMDC ore were left unsold?
Most of the steel plants, pellet plants and sponge units in Karnataka are either closed down or operating below the potential capacity due to acute shortage of iron ore. In these circumstances the steel companies are constrained to buy some quantities from other states to keep their furnaces running. Why would a steel company buy iron ore from other states by paying extra Rs 2,500 to Rs 3,000 per tonne towards the freight charges if the ore of the same quality and quantity is available in Karnataka.
Private sector miners say that NMDC has been pricing their ore abysmally low to benefit a very few steel producers. What is your stand on this?
It is known fact that NMDC has been following export parity pricing consistently to sell ore in the domestic market. It is not uncommon for a developing country like India to follow export parity pricing for domestic sales.
In fact, there are several examples worldwide of export parity pricing being followed by mining companies in Brazil, South Africa and China. It is relevant to note that even NMDC tweaked its export pricing formula after mining ban which in fact increased the prices to the domestic steel companies relative to that of earlier formula.
Why did NMDC, which sold its iron ore at Rs 4,110 per tonne on December 10, 2013, suddenly reduced it to Rs 3,227 on December 23, 2013. What caused such sudden downward revision in the price of iron ore, which is supposed to be in short supply in Karnataka?
This information is once again erroneously represented. The base price fixed by NMDC on December 10 was Rs 2,250/- per tonne from Donimalai and on December 23, it was Rs 2,190/- per tonne and Rs 2,050/- per tonne from C&B block of Kumarswamy respectively.
The difference in the prices is accounted by varying loading costs at different mines. The bid price being quoted was higher than base price majorly due to acute shortage which the steel industry has been complaining. Besides, the bid prices as mentioned in the question were also different due to varying Alumina, Silica and quality parameters for the ore auctioned.
The steel mills have been buying iron ore at subsidized prices from NMDC. But, they sell steel at Rs 38,000 per tonne, which is same as in Japan, when Japan's cost of iron ore is three times that of India.
This is again fallacious argument. The domestic iron ore prices determined by NMDC are based on export parity. Absolutely there is no subsidy. In fact, the steel companies are burdened with high interest rates of over 12% when the interest rates overseas is less than 2% and the steel companies are compelled to compete with these international steel players where there is no level playing field.
The current hot rolled coil prices in USA is $745 per tonne, Europe $610 per tonne, China $480 per tonne, India $575 per tonne, Japan $650 per tonne. The prices in each country are governed by different parameters and governing regulations.
What would be your next course of action, if your plea for appointing a price regulator is not considered by the Supreme Court?
At the current cost of production we incur Rs 40,000 per tonne of steel and given the current selling price of Rs 34,000 per tonne, we will end up losing Rs 6,000 per tonne of steel. We have borrowed huge amount of loans and we cannot afford to pay interest and lose money by buying high cost iron ore.
We will not be left with any other choice but to close down our steel plants, which will be a disaster not only for us, but the governments will lose revenue to the tune of Rs 10,000 crore by way of taxes.
