Iron ore prices are increasing due to increasing demand and cost

Iron ore prices are increasing due to increasing demand and cost
Photo:FILE PHOTOIron ore prices rising because of demand pull and cost push

India’s steel industry is facing an unprecedented increase in the price of iron ore. It is one of the major raw materials for steel manufacturers. In the last one year, iron ore prices have increased by more than 120 per cent, which is putting a lot of pressure on steel manufacturers and they are forced to increase steel prices. At the same time, it is also having a bad effect on the industries using steel.

between the last 6 to 8 months steel price There has been an increase of 45-50 per cent in the domestic market and steel makers feel that the hike in steel prices will continue in the near future. At least this uptrend is likely to continue for the next two quarters.

There are two primary reasons for the increase in iron ore prices. First, there is a gap between demand and supply. Demand is more than supply in the country, demand has increased and steel makers do not have enough iron ore available.

The second reason is that the cost of production has increased. This is called cost pressure. There is no change in the cost of mining, so the increase in the cost of iron ore is far-fetched. On the other hand, the difference between supply and demand is remarkable and this is undoubtedly causing prices to rise.

Iron ore price in 2020

(prices in Rs.)

thing, Description Size, grade 15 March 15 November Percent (%)
Lumps, Odisha Index 5-18 mm, iron (Fe) 63% 4,600 8,400 83
Fines, Odisha Index 0-10 mm, iron (Fe) 63% 2,250 6,500 189
Fines, NMDC, Chhattisgarh 0 -10 mm, iron (Fe)64% 2,860 4,610 61
Pellet Index, DAP-Raipur 6-20 mm, iron (Fe) 64/63% 6,475 11,700 81

Source: Steelmint, ISA

Arnav Hazra, deputy secretary and economist, Indian Steel Association (ISA), says, “Iron ore prices have risen unusually in the last eight months. Even state-run NMDC has increased the prices by 61 per cent. There is a comparison with the prices before Covid-19, so the difference in prices is visible only in the windfall profits of the mining traders. This is happening because of the huge lack of availability in the domestic market. International iron prices, more or less, remain at record levels, driven by huge unsatisfactory demand for iron ore from China, and this has supported higher prices, as miners export more than a third of their production and primary It has been sent to China.

However, it must be noted that India is not a major exporter of iron ore, as it attracts 58 per cent or 30 per cent export duty on high quality iron ore. But it is clear that iron ore exports from India have reached a record level in 2020. It is also visible as a percentage of production with absolute figures. In fact, iron ore exports in the first 10 months of 2020 have been 54 percent higher than the exports for the whole year in 2019.

Exports to China have been high, while Japan has also received partial exports, with which India has a long-term agreement. But right now we are facing an unpredictable situation in terms of iron ore availability in India, so there is a need for a temporary pause in exports for a few months till the situation normalizes.

Status of exports in last 4 calendar years and first 10 months of current year

(figures in million tones)

The year Iron ore exports from India
2016 23.85
2017 29.59
2018 18.88
2019 32.16
2020 (starting 10 months) 49.38

Source: Steelmint and ISA

Iron ore production declined significantly by 31.8 per cent in the first 6 months of 2020 as compared to 2019 and hence the availability has also been less. While iron ore production has been low in all iron ore producing states, there has been a significant decline in production in Odisha, which accounts for more than 50 percent of India’s total iron ore production. India produced 245 million tones of iron ore in 2019-20, of which Orissa has a share of 145 million tones. Thus, Odisha accounts for 49 per cent of India’s total iron ore production. Therefore, the sharp decline in the production of iron ore in Odisha is the primary reason for the acute shortage of iron ore in the country.

Production in Odisha decreased by 27.86 million tones or more than 43 per cent during the first 5 months of 2020 as compared to 2019. Overall iron ore shortfall in this financial year is 28.56 million tones.

Production in other iron ore producing states such as Jharkhand, Karnataka and Chhattisgarh dropped between 2019 and 2020. After Odisha, the biggest decline has come in Chhattisgarh, where iron ore production has decreased by about 19 percent.

The main reason for the decrease in iron ore production in all the states was the pandemic, which led to the imposition of a nationwide lockdown. This affected normal production. The availability of labor was also affected during this period and the resumption of normal mining activities was affected.

Iron ore production from states

(Figures in Million Tones (MT))

first half Odisha Karnataka Chhattisgarh Jharkhand other total
Apr-Sep 2019 64.68 15.06 14.66 12.3 3.41 110
Apr-Sep 2020 36.82 13.96 11.94 10.7 1.95 75
% Change 43.1% 7.3% 18.6% 13.0% 42.8% 31.8%

Source: Steel Mint and ISA

The main problem in Odisha’s mines was that only 5 mines started operating after the mining lease was given to the 19 mines auctioned in 2020 and the Mine Development and Production Agreement (MDPA) with the state. Production could be resumed only in those iron ore blocks, which were reserved for private consumption by the state government at the time of auction and the country’s steel producers were linked with integrated manufacturing hubs.

Thus, the supply shortfall, especially at the trading miner’s end, is clearly visible and small steel producers are being hit hard by this shortfall. This has led to a steep rise in prices as demand has also remained relatively strong.

The government needs to impose an immediate ban on the export of iron ore. Simultaneously, there is a need to start production in all the mines auctioned in Odisha. Only then can the price of iron ore be controlled. With this, not only the manufacturers will get the benefit of the price of finished steel, but all the industries using steel will be able to take advantage of it.

Arindam Mukherjee

(The author is a former editor and writes on steel and metals)

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