1. NMDC well-prepared to face a competitive market

NMDC well-prepared to face a competitive market

The iron ore scenario in the country is intractably linked with outlook for steel. The subdued demand and massive import inflows from China have adversely affected the steel production and, in turn, the demand for iron ore. Many of the small plants in IF and sponge iron segment are suffering from lack of local demand and have cut down on production

By: | Published: August 25, 2015 12:10 AM

A few months back the availability and price of iron ore were the major concern for the steel industry. The Supreme Court’s order stopping illegal mining in Karnataka and Goa as well as capping the production in Odisha, Jharkhand and Chhattisgarh led to a shortage of the key raw material for domestic users. In spite of having adequate reserve, some steel plants went in for imports due to lack of availability of iron ore to sustain their production.

However, with the introduction of MMDR Act and lifting of SC order, the allocations of new mines through auction route, creation of District Mineral Fund and Mining Exploration Fund via the miners’ contribution based on royalty are likely to remove the system deficiencies in the mining sector and introduce transparency in the mineral development of the country.

Domestic availability in iron ore is predominated by a number of private players. Among the government undertakings, the National Mineral Development Corporation (a navaratna company since 2008) at Hyderabad has been playing a stellar role in the exploration and development of the ore in the country for the past five decades and gradually been enhancing its production to reach the current level of more than 30 million tonne, which is around 20% of the total availability in the country. Having plants at Bailadila (Chhattisgarh, with 65% Fe) and Karnataka (new plant), NMDC is serving the major steel plants in the country. It is also setting up pellet plants (3.2MT), ore beneficiation and slurry pipeline from Bailadila to Vizag and ventured into setting up of a steel plant of 3 MT capacity at Nagarnar, Chhattisgarh which is scheduled to commence production in December ’15.

In tune with the profitability indices displayed by major global mining players like Rio Tinto, BHP Billiton, Vale and Fortesque, this Indian company achieved nearly R64 billion PAT (around 38% of the turnover) in FY15.

The iron ore scenario in the country is intractably linked with outlook for steel. The subdued demand and massive import inflows from China have adversely affected the steel production and, in turn, the demand for iron ore. Many of the small plants in IF and sponge iron segment are suffering from lack of local demand and have cut down on production.

Globally crude steel production follows a downward trend (2.1% negative growth in January-July ’15) with Chinese production coming down by 1.8% compared to previous year. As China was the single largest buyer of iron ore from Australia and Brazil, the dropdown in steel production has led to a much reduced level of seaborne trade leading to lowering of prices of the ore from $95/t CFR China in January, ’15 to $56/t CFR China in August, 2015. The domestic price of iron ore, both for fines and lump ore, by NMDC correspondingly came down sharply. However, the industry expects it to come down by a higher margin.

It must be appreciated that in the midst of wide scale violation of rules and procedures with single focus on short-term profitability that Indian mining sector got exposed to a few years back, NMDC could maintain propriety, norms and transparency in production and marketing of this precious mineral resource of the country and fully justified the trust and responsibility bestowed on a PSU. The production target envisaged at 100 MT by 2025 implies that NMDC would continue to focus exclusively on iron ore in the years to come. The global ventures envisaged by the company must await recovery of steel scenario. It is also well prepared to face a competitive market scenario brought in by the allocation of new mining leases via auction route in the coming months.

The author is DG, Institute of Steel Growth and Development. Views expressed are personal.

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