Despite 3 auctions, no takers for Sesa?s expensive iron ore

Amid a continuing blame game between steelmakers and miners in Karnataka, spurred by the entry of Sesa Sterlite?s highly priced iron ore in the e-auctions, the company has so far failed to secure a single buyer for its ore put up on auction.

In fact, most of the lots on the offer have been issued and re-issued in subsequent auctions but in vain. Sesa Sterlite, the diversified Indian minerals arm of London-listed Vedanta Resources, entered the e-auction of Karnataka on January 31 and has so far participated in two more rounds of auction held on February 14 and February 21.

According to the e-auction data available with the Karnataka government, Sesa Sterlite has offered 0.4 million tonne of iron ore within an Fe (iron content in the ore) grade between 55% and 62%, and a base price of R3,500 to R5,000 per metric tonne.

Barring two lots totalling 8,000 metric tonnes, remaining were left unsold, say the Karnataka government e-auction data. Interestingly, the buyer was no one else than Sesa Sterlite itself which bought the two lots for its pig iron plant in Goa.

Fe grades in iron ore classification indicate the quality of ore available from a particular mine. Any Fe grade of 60% and above is generally considered of good quality and below 60% of Fe grade or content is said to be of poor quality. Lower the grade, the poorer is the iron ore quality and requires more investments in beneficiation or blending to bring it to a higher quality.

?There is absolutely no interest in buying Sesa’s iron ore as they are highly priced. Unless they bring down the base price of iron ore on offer in tandem with NMDC’s prices, it will not be able to sell,? said Suketu Shah, the chairman of Alloy Steel Producers Association (ASPA) and joint managing director of Mukand Steel.

ASPA is a merchant body of value-added steel producers in India and is one of the associations which had been vigorously campaigning for reduction in the increasing floor or base price of iron ore in Karnataka in the e-auctions.

While there were clamours by the steel companies such as JSW Steel, Kalyani Steel and Mukand Steel against increasing base price of iron ore in Karnataka in the subsequent e-auctions since September, the entry of Sesa Sterlite in the e-auctions from January end opened up the Pandora’s Box.

?With the entry of Sesa Sterlite, the base price of iron ore for a grade of 61-62% Fe content rose up to R5,000 a tonne against R2,500 per tonne, a jump of 100%. This is unreasonable,? joint managing director of JSW Group Sheshagiri Rao had said on February 3.

He had said that this kind of pricing leads to a landed cost of R6,500 per tonne including transportation, loading and forest development tax (FDT).

According to the e-auction data, the price of Sesa Sterlite for the same grade has continued to rule around R5,000 per tonne leading to refusal of steel companies to bid for them.

In the e-auctions on January 31, February 14 and February 21, Sesa Sterlite had offered 96,000 metric tonnes, 92,000 metric tonnes and 2.12 lakh tonnes, respectively. These volumes had grades ranging from 55% Fe content to 62% Fe content. The 55-56% was priced at R3,500 per metric tonnes, 56-57% was priced at R3,750 per metric tonnes, 57-58% was offered at R4,000 per metric tonnes and the 61-62% Fe grade was offered at a base price of R5,000 per metric tonnes.

Of these, the company itself picked up a total of 8,000 metric tonnes with a grade of 57-58% at a price of R4,000 per metric tonnes.