Global iron ore prices are expected to ease as China, which is the largest consumer of the commodity slows down. Increase in supplies by global mining giants, such as Rio Tinto and BHP Billiton, is also expected to keep a check on prices.

However, in the domestic market prices are expected to rise. Following the Supreme Court ban on mining in Karnataka two years ago and the State Government-imposed limit on production in Odisha in 2012, India’s iron ore production in 2012-13 declined 16 per cent to 140 million tonnes (mt). Demand during the year totalled 136 mt (of which 3 mt was met through imports) while exports from the country were 18 mt.

While a partial resumption of mining in Karnataka from April will help boost supplies, the impact will be felt only one or two years from now on. On the other hand, demand for the steelmaking raw material is expected to see a robust pick-up next year.

Green shoots NMDC, which is the largest iron ore miner in the country, produces over 40 per cent of India’s output from its mines in Karnataka and Chhattisgarh.

It sells iron ore to the steel and sponge iron makers in Karnataka through e-auctions. But, as demand from customers has been subdued, NMDC has cut prices. It has brought the price of lumps down to Rs 4,300 a tonne and the price of fines to Rs 2,510 a tonne in August, from Rs 6,100/tonne and Rs 3,000/tonne in September last year. Throughout the past one year, the company either cut or left prices unchanged in the monthly price revisions as demand was lacklustre.

During 2012-13, domestic steel consumption grew 3.5 per cent, the slowest in many years, amid weak demand from end-user industries, such as automobiles, construction and consumer durables. However, there is a silver lining now. In October, NMDC hiked prices by Rs 100 a tonne, for the first time in the past one year.

In December again, it increased prices by another Rs 200 a tonne, given the recovery in demand and lower supply.

Iron ore production in Karnataka, which contributes to a fourth of India’s steel making capacity, is currently only about 15 mt (including 9 mt from NMDC), as against the 30 mt cap imposed by the Supreme Court. Many mines in the State are yet to restart operations as they await environmental clearances and approval of expired leases. With demand from local steel and sponge plants totalling 30 mt, only half of the existing demand is being met.

Gap to widen The existing demand-supply gap will only widen in the coming year, since domestic steel demand is expected to rise next year while iron ore supplies would pick up only a year or two from now. According to Business Monitor International, iron ore output is expected to increase at an annual average rate of 0.5 per cent only, reaching 156 mt by 2017.

The World Steel Association has forecast India’s steel demand to grow at a faster rate of 5.6 per cent in 2014. Approval of infrastructure projects worth Rs 1.9 lakh crore by the Cabinet Committee on Investment will help drive steel demand. Recovery in the global economy too, even though modest, will boost steel production. With capacity expansions (aggregate capacity to rise by 24 mt by 2017-18 from the current 90 mt) lined up by Indian steel makers, demand for iron ore is only expected to trend further upwards.

Global prices to drop Global iron ore prices, which witnessed a decline in the early half of 2013, have begun to pick up since July.

Following stock replenishments by China, iron ore (62 per cent Fe) spot prices at Tianjin port rose 24 per cent between June and November to close at $139 a dry metric tonne. However, a moderation in prices is likely from here on.

According to the World Steel Association, the Chinese steel demand will grow at a slower pace in 2014 as the Government’s efforts at rebalancing the economy will keep investment activities under check. Iron ore supplies, on the other hand, are likely to rise. According to the Canberra-based Bureau of Resources and Energy Economics, iron ore shipments by Australia, the world’s largest iron ore exporter, are expected to rise 17 per cent to a record 669 mt next year.

> maulik.tewari@thehindu.co.in

Related Topics
comment COMMENT NOW