Three public sector firms, RINL (Rashtriya Ispat Nigam), NMDC and MOIL Limited have begun to look for iron ore assets in Brazil, the world’s second largest exporter of the steel-making raw material, according to agency reports.
The plan, however, will not make for a substantial improvement in the sourcing conditions for private sector steel makers that do not have captive mines. Prices of iron ore auctioned by NMDC, though down by 12 per cent in the latest auctions this year, had spiralled sharply since mid-year to Rs 7,619 per tonne.
The prices have risen because NMDC is now charging import parity price for its e-auction platform. The cost differential for the sponge iron manufacturers and even integrated steel plants without a mine under their belts have shot up.
JSW Steel for instance, claims this is not fair. “To charge the domestic companies at the landed cost of iron ore is not fair,” said Seshagiri Rao, Joint MD and Group CFO. He claims the companies had set up steel plants to leverage access to cheaper ore which has been wiped out in the wake of the progressive ban on mining of the ore in Karnataka, Goa and Orissa.
Iron ore is not a homogenous product. The type of final products which a company plans to produce determines the type of ore it procures. So if a company changes its product mix, it also has to source a different variety of ore.
For a company with a captive mine, the changes in sourcing remains confidential, but on an e-auction platform it is like handing out in public the strategic business plan of the company.
Companies, naturally, are unwilling to come on record on this issue but they acknowledge it is a major one.
Public sector RINL and MOIL Limited are getting round the problem by entering into joint venture with NMDC to mine iron ore abroad. RINL has no captive mine but plans to increase its steel-making capacity to 6.3 million tonnes per annum from 2.9 million tonnes.
In the process, steel production in India is stagnating. The data from the World Steel Association for November 2012 shows India produced only 6.4 million tonnes of the metal in the month. It is just 6.6 per cent more than last year’s production level. For the full year, India’s steel production has risen by 4.2 per cent. It is, however, better than that of China