Informist, Friday, May 3, 2024

--NMDC official: Iron ore prices up on recovery in steel demand

--NMDC official: Iron ore buyers bullish at Karnataka, Odisha auctions

--NMDC official: Govt's infra push to drive iron ore demand next 5 yrs

--NMDC official: Restocking of iron ore by steelmakers spiking prices

--NMDC official: India FY25 iron ore output seen over 300 mln tn

--CONTEXT: India FY24 iron ore output was 281 mln tn

--NMDC official: India FY25 crude steel output seen 148-150 mln tn

--CONTEXT: India FY24 crude steel output was 144 mln tn

--NMDC official: See China 2024 iron ore import from India flat on yr

By Narayana Krishna

HYDERABAD - Prices of iron ore are on the rise as India's demand for steel--for which the mineral is the primary input--will remain robust for the next five years due to stocking up by steelmakers in the face of the government's thrust on infrastructure and continued purchases from China, public sector mining major NMDC Ltd said today.

Responding to Informist's emailed queries on the recent price increases, an NMDC spokesman said the government's thrust on infrastructure development is likely to boost the demand for steel, and consequently iron ore, for the next five years. The Narendra Modi government, which has raised its earmarked capital expenditure by more than three times over the last five years, is widely seen retaining power in the ongoing General Elections.

"We consider multiple factors, including demand, market conditions, availability, auction performance, and global and domestic price trends. In light of the recovery in the domestic iron and steel industry, as well as the uptick in finished, semi-finished, and pellet prices driven by stable demand, we made the decision to increase our iron ore prices," the spokesman said. "This decision was further supported by the higher bids we observed in the iron ore auctions held in Odisha and Karnataka."

A look at the company data shows that on a net basis, NMDC--which revises its product prices on a monthly basis--has effected an average 600-rupee-per tn price increase since the start of the year in January.

NMDC sold 12.5 mln tn iron ore in Jan-Mar, up 10% on quarter and 1% from the year ago level. For April, the company’s sales were up 3% on year.

The company said the government's commitment to infrastructure development is a key driver of iron ore demand, while initiatives like building 20 mln additional houses over the next five years, creating economic corridors with highway and port connectivity, promoting rooftop solarisation for 10 mln households, expansion of railways, and construction of new railway corridors and airports will also aid the growth of the steel, and consequently iron ore, industry.

"Given these ambitious initiatives, the demand for steel and steelmaking raw materials in India is expected to continue rising. As the largest iron ore producer of the country, we are closely monitoring these trends and positioning ourselves to meet the growing needs of our domestic market,” NMDC said.

After the slack seen during the pandemic years, the demand for steel in India is gradually recovering, motivating steelmakers to actively restock iron ore. “We have seen an upward push in iron ore prices,” NMDC said adding that it is difficult to give a firm long-term view on pricing in the backdrop of global uncertainties.

The company said India's iron ore output in the current fiscal year ending March 2025 is likely to top 300 mln tn, compared with last year’s 281 mln, while crude steel production is seen at 148-150 mln tn, as against 144 mln tn in 2023-24.

CHINA FACTOR

China's demand for steel, and thus iron ore, is a key factor for pricing of the latter in India, as the major consumer nation accounts for nearly 90% of the country’s iron ore exports. NMDC said it expects India’s iron ore exports, which are currently at a modest level, to sustain at the current level in the short-term.

The state-owned company itself is not currently exporting iron ore.

In Jan-Mar, the first quarter of 2024, the world saw "a slight increase" in crude steel output, NMDC said. However, major player China saw a downward trend, producing approximately 247 mln tn of crude steel, a 6% year-on-year decline, it said. There was an improvement thereafter. "Moving into the second quarter, we witnessed an upward trend in iron ore prices during April. This surge was primarily fuelled by restocking activities and optimism surrounding steel demand in China," the company said.

"Over the past six months, China's steel imports have averaged over 100 mln tn per month. This buying activity occurred in two phases: first, during a restocking period in the fourth quarter of last year, and second, as prices softened and expectations of a recovery in the troubled property sector increased," NMDC said. "Looking ahead, China's steel production is expected to surpass the 1 bln (tn) mark this year as well. Consequently, we can anticipate that 2024 imports will likely maintain similar levels as in CY23 (calendar year 2023)."

Prabhudas Lilladher said China's iron ore prices have improved over the last few weeks from the lows of $98 a tn seen March end to $119 this week, which has put domestic ore price in discount on an export parity basis.

PRICE REALISATION

A robust pricing scenario bodes well for the financials of NMDC. In line with the recent increase in global iron ore prices, NMDC had last week hiked prices by 400 rupees a tn for iron ore lumps and by 200 rupees for fines. The price increases were driven by the stockpile building by domestic steel mills.

"With this (April) price hike undertaken, we expect an effective price hike of 1.6% for Apr-Jun on quarter-on-quarter basis vs our assumption of a 2?cline. If these prices continue till end of Apr-Jun, average realisation on a year-on-year basis would be 6% higher at 5,135 per tn assuming no deterioration in product mix,” brokerage firm Prabhudas Lilladher said in a note.

The brokerage said if the current price trends sustain, realisations for the full year will also improve against last year.

NMDC pointed to factors needed to be at play to keep prices afloat. “...the sustainability of these price increases hinges on several critical factors. These include the successful implementation of production cuts, blast furnace utilisation rates, inventory levels, and any potential government stimulus packages,” it said.

At 1518 IST, shares of NMDC traded 4% higher at 269 rupees on the National Stock Exchange. End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Ranjana Chauhan

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