Iron ore prices in the domestic market are on an uptrend due to robust demand even as global prices are stagnant. Over the past six months, global iron ore prices are steady at $65-70 a tonne, while domestic prices have escalated 40-45 per cent as imports have turned costlier due to rupee depreciation.

As a result, the spread between landed cost and domestic prices of the ore has reduced.

Currently, the 62 Fe grade domestic ore trades at 16 per cent discount, to the landed cost compared to 31 per cent in FY18.

Decline of global price

The currency depreciation in the last few months has also played a major role in boosting domestic prices. While global prices of 62 Fe grade ore have declined by 15-17 per cent between January and August this year, landed costs declined only marginally by 3-5 per cent.

The increase in domestic iron ore prices has pushed up the cost of production for steel companies. However, they have managed to pass on the cost pressure by increasing steel prices (15 per cent in long steel) on the back of healthy domestic demand.

Prasad Koparkar, Senior director, Crisil Research said that, of the 17 iron ore blocks auctioned as of August, 14 have been awarded to steelmakers for captive usage. Once these mines ramp up, 35-40 per cent of crude steel capacity will be self-reliant by FY21, as compared to 27 per cent now, he said.

Mine lease expiry

“Moreover”, he added, “leases for about 80 million tonne iron ore production capacity are set to expire in early 2020, including 66 mt (17 leases) in just the iron ore-rich belt of Odisha.”

Rahul Prithiani, Director, CRISIL Research said that domestic iron ore prices will potentially correct by 7-9 per cent next fiscal, led by domestic supply surplus as merchant producers capitalise on peak production capacity before their mine leases expires.

Related Topics