NMDC, the state-owned largest supplier of iron ore in the country, is likely to raise prices by 50-55% for its long-term contract agreements (LTAs). The price rise, to be decided in a few days, will have domestic steel producers paying more for iron ore.
Any increase in LTA is decided by the long-term benchmark prices accepted by the Japanese Steel Mills (JSM) on a year-to-year basis duly adjusted to US $-Re variation. Top-level officials from NMDC and steel ministry are visiting Japan and Korea to finalise the annual price and quantity of iron ore to be supplied to the steel mills there.
NMDC would stand to gain as it sells 95% of its product through long-term contracts. The LTA price, which is charged by NMDC from domestic partners, is not determined by the domestic market, but by the long-term benchmark prices accepted by JSM annually.
While about 12% of NMDC’s products are exported through MMTC under the long-term arrangement, the balance is sold to domestic steel makers, sponge iron plants, pellet plants and pig iron plants at long-term prices.
The rise in prices would be certain given the international trend of prices of iron ore from Brazil and Australia, the two largest global producers. But much would also depend on the current market situation with inflationary trends and Indian steel producers being asked to hold on to their own price for long.
A price increase would benefit NMDC, but the iron ore producer feels that this is long warranted. The private miners in India charge market price for the high-grade iron ore that is supplied to the domestic steel industry. The present price of NMDC, which is, however, due for revision for high-grade lumps is around Rs 2,500 per metric tonne as against Rs 5,500-7,000 prevailing in the market. Similarly the price of iron ore fines charged by NMDC is around Rs 1,800 per tonne, which is much less than the price of lower-grade iron ore, which fetches about Rs 2600 per tonne.