07-09-2016

Iron Ore Has Surged Yet Top Miner in India Is Cutting Prices

Ironore

India’s top iron ore miner is feeling the squeeze despite a global rally in the price of the steel-making material.

NMDC Ltd. has cut prices about 6 percent in 2016 even as iron ore climbed 36 percent internationally. Challenges include record domestic supplies, moderating local steel demand and transport costs on India’s clogged railway.

“Transport costs are prohibitive,” T. R. K. Rao, the commercial director at NMDC, said in an interview on Aug. 31. “The answer to this is to have discussions with Indian railways to rationalize freight.”

NMDC has 6 million tons of iron ore lying around, Rao said. That’s part of a record overall stockpile in the industry in Asia’s third-biggest economy. Worse yet for Indian miners, global prices may weaken as demand for steel eases in China, the biggest producer of the alloy.

Rao said he’s trying to see how to reduce NMDC’s logistics costs to help cope with the current outlook.

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The company faces risks from state governments’ plans to auction iron ore mines in Odisha and Karnataka. India’s second-biggest steelmaker, JSW Steel Ltd., which buys a major chunk of its ore from NMDC, plans to bid for mines in both states.

“The new incremental domestic supplies will compete with NMDC’s iron ore and weigh on pricing,” Chintan Mehta, an analyst at Sunidhi Securities & Finance Ltd., wrote in an Aug. 16 note.

NMDC’s net income dropped 30 percent to 27.1 billion rupees in the three months through June, according to data compiled by Bloomberg News.

The stock has declined about 12 percent in the past three years, compared with a 50 percent advance in the benchmark S&P BSE Sensex Index. NMDC fell 0.6 percent in Mumbai on Tuesday, bucking the Sensex’s 1.6 percent climb.

India’s government is aware that there are “piles of iron ore” lying unused in states such as Jharkhand and Odisha, Mines Secretary Balvinder Kumar said in an interview on Aug. 19 in New Delhi.

The Federation of Indian Mineral Industries pegged total surplus stockpiles in the biggest producing states of Odisha, Karnataka, Jharkhand and Goa at roughly 196.20 million tons at the start of the current financial year on April 1. That’s up 35 percent from a year earlier, according to the data.

The federation estimates India extracted 139.73 million tons in 2015-16 and consumed 101.82 million tons.

Supply is rising partly because merchant miners have until 2020 before their leases expire under India’s new mines policy, prompting them to extract to “the full potential,” according to Ashish Kejriwal, an analyst at Elara Securities (India) Pvt.

One solution may be exports: India is looking at whether to scrap a 30 percent export tax on higher grade ore after lobbying by the mining industry.

Source: Bloomberg

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