NMDC margins shrink as ore prices hit 5-year low

By: | Published: September 28, 2015 12:38 AM

PSU has appointed consultancy firm KPMG for suggesting ways for increased price realisation for its Karnataka ore

Poor off-take of iron ore by the domestic steelmakers and the decline in prices of the mineral have reduced state-run NMDC’s net sales realisation (NSR) to Rs 800-900/tonne, the lowest in the last five years. Around the same time in 2010, the realisation was Rs 4,500/  tonne.

“Steel production is not going up. There is more supply of iron ore than demand. We are sitting on a surplus of 6 million tonne of iron ore (the production during April-August stood at 10.5 million tonne),” a company official said.

NMDC was forced to bring down the prices of iron ore lumps and fines by 32 % and 45% respectively since January.

The company, which revises price every month weighing the demand-supply dynamics, has fixed the lump price at Rs 2,850 per tonne and fines at Rs 1,660 per tonne for September. These are the lowest price in the last five years, the official said.

NMDC’s ore sales stood at 11.27 MT in April-August, down 17% from the year-ago period. Faced with subdued demand, steel production in the country has been anemic for quite some time now. Compared to July 2015, overall “production for sale” of steel in August, 2015 fell by 2.1 % to 7.3 MT.

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NMDC has been hit particularly in Karnataka, where it sells around 10 MT of ore annually through the auction route. Due to tepid response from the user industry to auction of ore, NMDC was forced to sell it at around Rs 2,500 per tonne cheaper than the landed cost of imported ore in the state. However, in other parts, its ore is costlier by around Rs 200 per tonne than the imported price.

NMDC reckons that if the current subdued global prices (which trigger imports) prevail for another 2-3 years it might have to sell iron ore cheaper in Karnataka. The PSU has recently appointed consultancy firm KPMG for suggesting ways for increased price realisation for its Karnataka ore.

“For any auction process to help result in effective price discovery, a diverse seller and buyer base is a prerequisite.

However, in Karnataka, one seller (NMDC) and one buyer (JSW Steel) dominate the e-auctions,” a Karnataka-based private miner said.

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