National Mineral Development Corporation (NMDC), the country’s largest iron ore producer, is considering to slash prices of iron ore by 40% due to slowdown in demand by steel manufacturers. The move would come as a breather for steel makers such as Ispat Industries, Essar Steel, JSW Steel and Rastriya Ispat Nigam Ltd (RINL) which have long term supply contracts with NMDC. The PSU meets about 30% iron ore requirements of domestic steel companies. Other steel majors like Tata Steel and Steel Authority of India Ltd (SAIL) have captive iron ore mines.
NMDC had increased long-term price of iron ore fines (for domestic consumers) by 10.5% and that of lumps by up to 40% in October even as iron ore price were slumping globally on the back of softening demand. The decision to raise prices was taken due to high price differential between international and domestic iron ore prices.
The global glut situation of steel and iron ore has, however, may force NMDC to revise downwards the prices. Even the demand for metal has fallen in last few months. The decision would particularly benefit steel companies in the longer run who do not have the option to look beyond NMDC for sourcing their ore requirements. As most companies have one-year contract with NMDC, the sudden change in demand situation has turned against the interests of companies who continue to buy expensive ore.