Pellet makers in a soup as miners up iron ore fines' rates

The decision of some Odisha miners to hike prices of iron ore fines has threatened to throw out of gear the operations of the ailing pellet makers in Odisha. While some pellet makers have already shut their units, many others were on the edge of closure.

Prices of iron ore lumps have corrected in the range of Rs 300-700 a tonne. Fines prices, on the contrary, were hiked by Rs 200 per tonne, impacting the pellet manufacturers. Pellet, an intermediate product in steel making competed with lumps.

But with the crash in lumps prices, buyers were cautious on pellet purchases. Iron ore pellets, is a value-added manufactured product, whose cost of production is around Rs 4500-5800 per tonne (excluding taxes), is presently competing with mined iron ore lumps & calibrated lumpy ore (CLO), whose cost of production is below Rs 500 per tonne (excluding taxes).

 

In the current scenario, the minimum landed cost of fines 62-65 per cent Fe) is Rs 2207 per tonne for freight distance of up to 25 km and Rs 2347 a tonne for 50 km.

Deepak Bhatnagar, secretary general, Pellet Manufacturers' Association of India (PMAI), said, "Globally, there is a sharp drop in prices of iron ore and steel, but in India, the price of iron ores are still significantly high making it unviable for pellets & steel industries. International iron ore price is reduced from US$140 in August 2014 to $38 per tonne at present with a drop of 73 per cent, which is expected to go further low. Whereas, Indian iron ore price is reduced from Rs 3000 in August 2014 to Rs 1600 per tonne at present with a drop of only 47 per cent."

Along with a hike in fines prices, skewed royalty formula of the Odisha government was killing the pellet industry.

Despite directions by the Government of India and several judgements by the Supreme Court, the state government continues to defy and charges royalty for fines at the highest rate meant for 65 per cent grade iron ore whose production in the state may not be more than 15 per cent. In other words, the royalty at uniform rate of Rs 620 per tonne is being charged for fines as well as lower grades of lump ore.

Presently, the royalty rate for iron ore lumps and fines (62-65 per cent) stands at around Rs 600 a tonne in Odisha and the same rate is applied even to lower grade ore. Rationalisation of royalty would slash rates to Rs 539, Rs 463 and Rs 456 a tonne for 62-65 per cent, 60-62 per cent and 58-60 per cent Fe grade lumps respectively. Similarly, post rationalisation, the royalty rates are expected to fall to Rs 274, Rs 203 and Rs 203 for comparable grades of fines.

"We thank the Odisha government for implementation of differential royalty structure for low grade iron ores. In similar line, differential royalty rate structure has to be followed for other grade of ores, which is being followed in other states across the country. The policy needs to be revisited so that pellet industry shall survive", Bhatnagar said.

Presently, the capacity utilisation of pellet plants in the state stands at 45 per cent. Full capacity utilisation of all pellet facility promises a royalty gain of Rs 843 crore for the state.

On the other hand, closure of the pellet plants is likely to cause revenue loss of Rs 1963 crore (Rs 361 crore of state taxes and central taxes worth Rs 1601 crore). That apart, closure of the pellet plants would impact livelihoods of more than 30,000 families.