Just when the domestic iron ore industry has started recovering from a slowdown in demand, the central government is planning to cap the price of the natural resource in order to make cheaper raw material available to the steel industry. But the iron industry wants prices to be market determined.
Over-supply of iron ore from China had kept prices muted in the past. However, with the improvement in demand from China, prices have seen an upward movement.
According to sources, the central government is planning to cap the price of iron ore, which would enable steel producers to procure the raw material at a cheap cost.
Niti Aayog has been mandated to examine the proposal.
The move will help the steel industry further after expiration of the minimum import price that cushioned the domestic sector from cheap steel imports mainly from China, for one year.
The raw material is a major cost component in steel making. For small steel producers who follow the blast furnace route, iron ore comprises 18 per cent of the total cost on an average, while for sponge iron producers it is 20 per cent, according to industry estimates.
Prices should be left to the market forces, according to Basant Poddar, Vice-Chairman, Federation of Indian Mineral Industries (FIMI).About 90 per cent of iron ore mining leases will expire in 2020, and steel producers can bid for the mines then to secure raw material supplies,he argued.
Poddar said the domestic steel industry never showed any interest in bidding for the mines as iron ore was always a buyer's product because of low prices.
Indian iron ore miners are claiming that they are severely crippled with high royalty, various state-level taxes, high export duty, export restrictions and cap on production. Any further restriction and regulation of iron ore pricing will adversely impact the survival of the mining industry.
At present, high coking coal price is a bigger burden than iron ore for merchant pig iron and other blast furnace-based steel producers, an expert said.
Iron ore in the Indian domestic market is actually priced cheaper and does not have a major bearing on even the smaller steel units in the country. It is the cost of coking coal and other expenses, and inherent inefficiency that are impacting the profitability of the steel industry, he said.
The domestic iron ore industry is of the view that since the price of steel is completely market driven and unregulated, iron ore prices should also be allowed to be freely determined by the demand and supply principle of market and no restriction should be imposed.