Despite battling an unexpected headwind in the form of the Covid-19 pandemic, iron prices in the country are projected to bounce back again in H2 or October-March period of FY21. Currently depressed, iron ore prices are slated to gain 15 per cent (Rs 350 per tonne) according to a forecast by brokerage firm Motilal Oswal.
After a recent price correction (on May 9), NMDC’s iron ore fines are priced at Rs 1960 per tonne, whereas lumps would be available for Rs 2250 per tonne. Iron ore prices of Odisha Mining Corporation (OMC) are in the range of Rs 1700-2452/tonne, while lumps can be procured anywhere between Rs 2380 and Rs 3439 per tonne depending on the ore grade. Both NMDC and OMC are state controlled merchant miners, whi supply to end use industries.
In H1, or during April-September, prices of the key steel making ingredient are expected to remain subdued due to lacklustre demand. Most of the steel mills across the country are running below their nameplate capacities. Moreover, secondary steel producers that faced shutdown because of the lockdown 1.0 in March have restarted activity only in May.
Recovery in domestic iron ore prices would be propelled by demand uptick as steel makers are expected to ramp up capacity utilisation with concerns easing on the Covid-19 pandemic. Besides, September would also mark the close of the liquidation period for clearing accumulated iron ore by merchant miners. Some of the leading merchant miners such as Essel Mining & Industries and Rungta Mines lost most of their operative leases to frenetic bidding in Odisha’s auctions.
The lease validity of these merchant mines expired on March 31, 2020. Before the lease tenure drew to a close, the Odisha government successfully organised online auctions of 21 iron ore, manganese ore and chromite blocks. Though Letters of Intent (LoIs) have been awarded to all successful bidders at electronic auctions, the mines haven’t been able to recommence for want of vesting order from the state authorities. This is despite the fact that statutory approvals of all mines have been extended by two years with the Centre promulgating an Ordinance to ensure seamless transfer in ownership and continuity in mining operations.
But, on ground, there is an anticipated delay in restart of merchant mines. Bureaucratic procedures in Odisha, a state accounting for over a half of the nation’s iron ore output, have been slowed by efforts to contain the spread of the deadly contagion. Only a few critical administrative departments are running. The state steel and mines department, however, has urged the forest and environment department to realise NPV (Net Present Value) from new leaseholders to enable issue of vesting orders to reopen the mines. NPV is levied on diversion of forest land for non-forest activity.
“There is no activity in merchant mines now. Mining is being carried out at the captive leases of players like Tata Steel and Steel Authority of India Ltd (SAIL). Even after we obtain all formal orders, it would be difficult to regain the momentum. Our workforce has flocked to their native places and we believe it will take three to four months to win back their confidence and re-engage them”, said a standalone miner.
Slump in iron ore demand has roiled big miners like NMDC. The company's iron ore volumes in April 2020 tanked 49 per cent year-on-year to 1.38 million tonnes, forcing the public sector miner to slash prices by Rs 500 per tonne. NMDC, the country’s single biggest miner, was made to swallow a bitter pill again in May as it reduced prices of both lumps and fines by Rs 400 a tonne, effective May 9.