According to e-auction data available from Karnataka, the prices of lower-grade ore have increased than that of the higher-grade ore in the past few months. In some rounds of e-auction, the price fixed has even surpassed the floor price of higher-grade ores and grades, or the base prices, on offer from Indias biggest miner NMDC.
As a case in point, for the round of e-auction held on December 13, the base price of iron ore fixed by NMDC for the fines produced from its Kumaraswamy mines was fixed at R2,050 per tonne for Fe grade of 60%. Similarly, the price of ore fixed for 59% Fe grade for the same e-auction was R2,110 per tonne, the base price of NMDC.
This is in sharp contrast to R3,100 per tonne and R3,400 per tonne fixed for 56% and 58% Fe grade, respectively, by private miners for the e-auction held on December 21 in Karnataka.
Fe grades classification in iron ore indicates the quality of an ore available from a particular mine. Fe grade of 60% and above is generally considered to be of good quality. Lower the grade, the poorer the iron ore quality, and it requires more investments in blending to improve its quality.
According to data of the e-auction conducted by SC-appointed Monitoring Committee, the base price of 59% Fe grade for e-auction fixed on December 21 was higher than the current prevalent rates of 59% Fe grade in Orissa, which is available at R1,700 per tonne, including royalty to the state.
Category-A mines are quoting much above the base price of NMDC as miners are free to fix rates in Karnataka and there is a major shortfall in demand. Since there is a huge demand-supply mismatch, miners are taking advantage of the situation, an official at JSW Steel said.
He said the base price of NMDC for 59-60% Fe grade iron ore has been in the range of R1,900-2,000 per tonne, while the base price for Category-A mines for even lower grade iron ore is as high as R3,400 per tonne. This was observed in the e-auctions held in December. Usually the Monitoring Committee conducts up to four e-auctions in a month where iron ore stock of NMDC and other private miners are sold.
Since only 25 mines are operational, out of the approved 65 mines under Category-A and B, the total production expected in the current year is 18 million tonnes (mt) against a demand of 40 mt. This imposes a major strain and a mad scramble for ore in Karnataka in every e-auction.
The funny part is if a batch of iron ore remains unsold in an e-auction, the miners bring it back even at a higher price, the JSW official said.
During a recent interaction, Kalyani Steel managing director RK Goyal had said the companies in Karnataka have seen prices rising from R4,000 per tonne in September to R5,800 per tonne in the December e-auctions. This is against a tapering supply from the e-auctions.
Kalyani Steel sources about a lakh tonne of ore a month from the auctions, while JSW Steel sources up to 7,50,000 tonne.
In fact, the base price for 64% Fe grade the highest quality of iron ore has gone up to R4,150 per tonne, against R1,700-2,200 per tonne fixed by the Orissa Mining Corporation for sale to customers in and around Orissa.
An official in the Monitoring Committee accepted that the prices have risen in the last few e-auctions but they are isolated cases and they correct with time.
We have a specific formula to calculate prices, which is based on international prices and the rupee-dollar parity, and that is why it seems different from NMDCs price, which reflects international prices after a lag of a quarter, he said, adding that NMDC is only treated as a base.
However, Federation of Indian Mineral Industries additional secretary general RK Bansal said the important thing to note is the price at which these stocks are sold and not the base price.
He said while the base price of NMDC is lower for some grade of ores, the final booked price for the same ore is much higher than the lesser grades.
While Bansal is partly right for 59-60% Fe grades sold in the December 10 and December 13 auctions, there are also several instances where serious anomalies are reflected in lower grades.
It is an issue of demand and supply. Unless that is sorted out, these anomalies will continue in the state much to the displeasure of the steelmakers, said Bansal.