State-owned NMDC, the country’s largest iron ore merchant miner, will invest ₹2,200 crore in FY25 on setting up a slurry pipeline and new processing plants. The investment comes in the backdrop of the company’s 100 million tonne (mt) production target by 2030.
According to Amitava Mukherjee, Chairman-cum-Managing Director (Additional Charge) and Director (Finance), NMDC, iron ore prices is likely to decline to $92 per tonne by 2027, from $110 per tonne range in 2024. Low-grade producers will feel the pinch.
The company intends to stick to its low-cost production model and focus on high-grade iron ore to help safeguard its cash flow.
In an interview to businessline, Mukherjee talks about changing dynamics of the global market, review of annual production targets for FY25, breaking-even of Panna diamond mines, among others. Edited excerpts:
What does the current market outlook for iron ore look like?
The iron ore market has experienced a boom, with demand soaring 250 per cent from 1,060 mt in 2000 to 2,500 mt in 2023, driven primarily by industrialisation. China alone accounted for 75 per cent of the global sea-borne iron ore demand. However, as China transitions to a service-oriented economy, its iron ore demand may decline 20 per cent over the next decade. This decline is attributable to reduced use of blast furnaces and a shift towards use of scrap metal.
In contrast, India’s iron ore demand will move up significantly, with domestic mining operations set to meet the country’s demand. South-East Asia is poised for substantial growth in iron ore consumption.
The shift towards green steel production is transforming the market, increasing demand for high-grade iron ore. Countries like Brazil and India are set to become key suppliers, while China, currently accounting for over 60 per cent of the global iron ore market, will be cutting down its domestic production by half, over the next decade due to rising costs and lower-grade resources.
Consequently, buyers will prioritise high-quality iron ore, driving up premium products like high-quality lumps and pellets. With supply constraints persisting, premiums are expected to rise, making quality a key differentiator in the iron ore market.
Is NMDC reviewing its annual production outlook for FY25? The target was 50 mt for FY25.
Yes, we are actively reviewing our annual production outlook for FY25. We are on track to meet our target of 50 mt this fiscal. Despite the challenges posed by heavy rains, we have significantly covered 35 per cent of our target and are poised to carry out the remaining by the end of this fiscal.
Our goal is to produce 100 mt by 2030, for which we’ve already set various expansion initiatives in motion.
What sort of hit does NMDC expect in its annual cash flow and profitability because of the commodity price volatility?
Commodity price volatility is a part of market dynamics. NMDC’s strong market position and high-grade iron ore reserves provide a buffer. As iron ore prices decline — projected to drop from $110 per tonne in 2024 to $92 per tonne by 2027, low-grade producers will feel the pinch.
NMDC’s low-cost production of high-grade iron ore will help safeguard its cash flow.
An annual turnover growth of approximately 21 per cent in FY24 has helped strengthen NMDC’s presence in the sector. The company will be funding capital expenditures from internal accruals. Our liquidity is less vulnerable to price fluctuations.
Iron ore, being a volume-driven business rather than price-driven, our focus is on increasing volumes.
NMDC recently restarted operatios at Panna diamond mines. When does it turn profitable?
Panna Diamond mine is the sole mechanised diamond mine in the country. We are still in the development phase after reopening. Initial signs of incidence of diamonds are encouraging.
We have begun operations, and while there are certain restrictions on expanding beyond the existing 10.6-hectare pit, we are focused on optimising our processes to maximise productivity and revenue. Panna mine has a production capacity of 1 lakh carat per annum and efforts are on to reach the optimum capacity for break-even.
Currently, it is a bit challenging to provide an exact timeline for profitability. But we are confident that the project will become cash generating and self-sustaining in due course.
How does this diamond mining project ultimately help NMDC?
This project helps strengthen our presence in Madhya Pradesh, where we’re exploring other minerals.
Our presence in Panna also helps our employees gain experience in processing various minerals and overcoming complex mining challenges associated with deep-seated ores.