Steel companies to pay more for ore as mines get costly

Feb 12,2020

Iron ore auctions are set to increase the cost of mining in Eastern India, with premium costs ranging from 90 percent to 135 percent for Odisha's seven mining bids to date. This is likely to weaken the margins of non-integrated steel players who do not have captive ore according to a new report by ICICI Securities.

Nonetheless, JSW Steel, which has been more competitive in the auctions than Tata Steel and Arcelor-Mittal and has packed four mines, is expected to be better off after the next sale. It also claimed that the disparity between domestic and imported ore prices would be reduced after the auction.

"JSW Steel has planned to secure a large part of its current steel portfolio with Odisha ore and thus add inadvertently to the existing cost structure. Yet, given the scenario that we see unfolding, JSW Steel will be better off than an unintegrated steel player in India, "the report said.

JSW Steel won the Nuagaon, Narayanposhi, Ganua and Jajang mines. "We have participated in the Odisha iron ore auctions to make sure the availability of raw materials. However, we wouldn't like to make any comments at this point, as we have yet to receive any official communication from the authorities, "JSW Steel spokesperson said.

Tata Steel, SAIL and JSPL have not been competitive in their bidding. Arcelor Mittal has also been fairly measured. While both the State and the Center have been successful in modifying the auction rules whenever appropriate, the last roadblocks need to be cleared according to ICICI Securities.

However we see the distinct possibility that Odisha will cease to transmit deflation within states, after the auction. The situation we see playing out will reduce the profit profile of unintegrated steel players and will favor merchant miners in the other states," the study said.

According to ICICI Securities, after the auction merchant miners would coexist with captive miners. Over time, as auctions take shape, there will be more localized usage of Odisha (merchant) ore As a result, Odisha's merchant ore can no longer transfer deflation to other states, such as Chhattisgarh, Karnataka, and Maharashtra, it said.

"We expect Indian iron ore prices to rise relative to import parity. This will minimize the discount of 40-50 percent between domestic and imported prices," the study said.

Latest News