Firms demand cut in ore price

Steel majors, which yesterday announced a temporary freeze on the prices of their products, have now sought reduction in the prices of iron ore, the main raw material for steel.

Essar Steel and Ispat Industries, among many others, have told the government-owned National Mineral Development Corporation (NMDC) that their purchase price of iron ore should be reduced as the net realisation from sale in the overseas market has gone down, following the imposition of the Rs 300-a-tonne levy on exports.

A reduction in iron ore prices by Rs 300 per tonne will help these companies to save Rs 600 crore a year.

The combined purchase of these companies, which do not have captive iron ore mines, from the NMDC is 20 million tonnes a year. The NMDC sells nearly 23 million tonnes of ore a year. Federation of Indian Mineral Industries Secretary RK Sharma said the NMDC had directed the issue to the finance minister. "Any reduction in the prices of domestic ore will help private steel companies," he said. The NMDC is a part of the federation.

An executive of one of the steel companies said the demand was justified. "There is a government chalked-out formula to derive the net sales realisation from exports of the NMDC. The prices of domestic ore are determined once a year in accordance with the net sales realisation. So, the domestic prices will change this time also as the net sales realisation changed," he added.

Industry watchers said the government might be willing to reduce the ore prices because the steel companies toed the government line by announcing that they would not hike prices for a month.

"The steel companies did a smart thing. They said yesterday that they would review the situation in May, meaning they have kept their options open. If the government gives them ore at reduced prices, they may hold or go for only a marginal increase in steel prices. If the ore prices are not reduced, they will have a strong case to say that they cannot absorb the spiralling rise in raw material," said an analyst.

In addition to iron ore, power and freight costs have also gone up, making steel production dearer in the recent past. Steel companies had raised prices after the Budget to align them with global markets but later agreed to reverse their decision.

Analysts said there was enough scope for a price increase since steel prices in India were lower by Rs 2,500-3,000 per tonne, compared with international prices.