With domestic steel prices tumbling to a 45-month low in August due to falling exports and rising imports, iron ore prices, a key steel-making raw material, have followed suit. While state-run NMDC, the country’s largest iron ore miner, is optimistic about a turnaround soon, others players in the fragmented sector see room for further price corrections.
Around 1.6 tonnes of iron ore is required to make one tonne of steel.
International prices of iron ore (62% Fe) have plummeted to the lowest levels in 20 months to $99 per tonne, due to a host of reasons, including a housing oversupply crisis, an economic slowdown in China and oversupply from major producing nations. Domestic prices also fell almost in tandem (not not steadily), to an eight-month low in August.
Federation of Indian Mineral Industries (FIMI) additional secretary general B K Bhatia, said, “Iron ore prices have tumbled to around $100 per tonne (CFR China) from its peak of $140 a tonne in January this year. The recent downturn in global prices is primarily due to subdued demand in China. It has also rendered
Indian low-grade exports unviable. Unless demand in China picks up, the prices will remain subdued.”
The slump in ore exports could have a significant bearing on India’s overall goods shipments, where the commodity is a significant constituent, and the trade and current account deficits.
The gross value added in the mining and quarrying sector has been declining in recent quarters – the year-on-year growth slumped from 111% in Q2FY25 to 7.5% in Q3 and further to 4.3% in Q4.
While the global markets have turned adverse for the local miners, the Supreme Court ruling affirming the states’ taxation powers for mineral rights and mineral bearing lands with certain retrospective validity could potentially jack up tax burden on the industry.
Mining sector expert Abhinav Sengupta, said, “Recently, the global iron ore market has experienced a downturn, with prices falling due to several factors. These include an economic slowdown in China, oversupply from major producers, and a shift towards using steel scrap driven by environmental concerns. This price decline has significant implications for the Indian iron ore industry, affecting profitability and market dynamics.”
“NMDC has reduced iron ore prices by approximately 18% by early August 2024, from the peak levels seen in the last week of May 2024, reflecting the broader correction in international price trends. Global iron ore prices have declined by around 22% since the December 2023 peak as demand from China continues to remain subdued in CY2024,” ICRA’s Sumit Jhunjhunwala said.
China is the largest producer and consumer of steel. Like any other part of the world, most of its steel is used in the construction and housing sectors. China’s housing oversupply crisis and the government’s lack of stimulus measures for debt-ridden property developers have increasingly hampered the outlook for construction activity. The poor demand for steel in China has driven Chinese mills to resort to production cuts and iron ore buying.
According to the World Steel Association (WSA), global steel production was down by 4.7% in July this year and 0.7% during the January-July period of the current year compared with a year ago. However, this is not just a Chinese phenomenon. Steel production fell in four of the five top steel-producing nations—China, Japan, the US, and Russia – during the January-July period of
the current year. India was the lone exception, recording a 7.2% positive growth in steel production during the same period over a year ago.
As India’s steel production steadily grows, so does its iron ore consumption – from 210 million tonnes in 2021 to 243 MT in 2023. Domestic major NMDC’s CMD Amitava Mukherjee said, “After navigating recent price adjustments, we believe the iron ore prices have bottomed out and the market is poised for a positive turnaround. While global prices remain soft, the robust demand suggests we are at a turning point. We anticipate an upward shift in pricing in the near
future.”
BigMint CEO Dhruv Goel, however, differs, saying, “Indian iron ore prices have adjusted in line with the decline in steel prices and margins. There is still some room for further correction, as the second half of 2024 is expected to see an increase in supply in the seaborne market. This will likely put additional pressure on global prices, which are currently around $100 per ton on a CFR basis. Meanwhile, Indian supplies are expected to increase in the second half of 2024.”
Iron ore is a very structured industry. The big four – BHP, Rio Tinto, Vale and Fortescue – control the market. Experts believe the way Opec does not flood the market, big four iron ore miners also won’t flood the market with excess production if there is insufficient appetite.
However, that said, iron ore prices will likely hover around the current rates in the near term.
From: financialexpress
Financial News
