The prospects and outlook for iron ore business are making the rounds. While the general perception is that the sharp drop in global prices from $130/t cfr China to the current level of $90/t cfr China does reflect a trend of further drop in prices ? as demand from China is to come down regularly following restrictions imposed against polluting steel units and the resolve of the government to close down polluting iron-making capacities ? there is an alternate view by some reputed analysts that iron ore prices have reached the lowest range and can only rise now on renewed Chinese demand.
It is also felt that the cost of production of Chinese iron ore mines at an average $120/t does not permit the continuance of imports landed at below that level for long.
Between these two extreme views, the reality is that surplus availability of the material in the global market, coupled with nearly 120 MT of ore inventory lying at Chinese ports, has compelled the primary three producers to look afresh at the expansion/acquisition plan or cap capacity utilisation in their mines to reserve production for better days.
The reverse scenario in India is interesting. The current demand exceeds supply, tempting NMDC to raise prices. The speedy clearance of leased mines (total 18) in Odisha within five months and auctioning of illegal mines under Group C in Karnataka would enhance availability of iron ore gradually in the domestic market.
The additional requirement by SAIL and Tata steel in FY15 and FY16 following augmented capacities through brownfield/greenfield would be met by their freshly leased captive mines. For the interim period, some imports ranging from 0.5-1 mt may be booked by Indian steel producers and this has already begun.
Keeping in view the declining trend in global prices, it would not be imprudent if some inventory build-up of import shipments of high Fe content can be undertaken by NMDC at a competitive rate to meet the temporary shortage in the domestic market. It would definitely help small and medium steel enterprises and sponge iron units.
The big three producers are indeed concerned about the fate of large investments made by them in upgrading facilities at their mines and would be eager to offer buyers? price for large order load.
As coking coal prices have also nosedived at $110/t fob Australia and spot prices may soon reach below $100/t, the dwindling raw material costs may provide a relief to the extent of more than R3,500 per tonne for integrated steel plant.
A look at the feeble market scenario should convince the producers not to convert the total saving into increased prices and leave the most part for enhancing non-price benefits to consumers.
If the market pick up is faster than what was envisaged in the pre-election phase, all out efforts must be taken by state governments, the Centre and mine owners to enhance production of iron ore and coking coal through speedy implementation of court orders and initiating required changes in auctioning of coal mines, including reorganisation of CIL supplemented by imports at competitive rates, wherever needed.
The author is DG, Institute of Steel Growth and Development. The views expressed are personal