NMDC Likely To Hike Iron Ore Prices

NMDC in a move to take benefits from the supply constraint has raised the iron ore prices by 10% and may consider it to revise further if supply situation does not improve from here onwards.  As per various media reports NMDC had schedule a meet to further revise the iron ore prices for the month of July and August contract. It is expected that company may announce it sooner.  Earlier NMDC had raised the price of the raw material by 8-10 per cent for April and June contract with the steel companies on the back of increased demand and lower availability. However this did not impacted the margins of the steel companies as most of the steel companies passed on the hike by increasing the steel prices.

Steel companies in India are facing iron ore shortage problem since ban on Mining in the Karnataka region and in some other mines of Orissa and Jharkhand.  With the limited availability of the iron ore in the country steel companies were not left with much option but to buy iron ore at the available prices mainly through NMDC.

Since January, Steel companies have raised the steel prices by Rs 1000-1500 per tonne on account of the decent demand, increase in the input cost and high rupee depreciation. Domestic steel prices are based on the international prices. And despite a significant fall in the international market steel price in India remained quiet firm. This was due to high rupee depreciation which kept import prices high thereby restricting cheap imports in the country and benefiting the domestic steel industry.

We believe that the further hike in the iron ore prices could impact the margins as this time it will be difficult to pass on the cost to the consumers due to weak demand scenario. Also the current steel prices are at the import parity levels and any hike in the domestic steel prices will make the import cheaper. The current scenario is not quiet conducive for the steel industry in terms of demand on account of the weakening economy and revival of the monsoon.  The more worrying factor was the sector's inability to reap major benefits from the decline in coking coal prices due to the weak rupee which depreciated around 10 per cent against the dollar.