THE NEW GOLD

Iron ore seems to be the new gold in 2020.

The main raw material used for making steel, has been seeing a surge in price like never before, more than most of the ferrous metals. And most analysts expect these prices to remain high or even go up further in the coming months.

This year, the price of iron ore has risen more than 50% this year vis-à-vis 20% rise in hot-rolled coil steel and 12% increase in steel rebar. Domestic iron ore prices across grades have doubled on an average from Rs 4,000/tonne to Rs.8000/tonne.

So why are the iron ore prices on the rise?

On one hand, rising imports -

• Record steel production hit all-time high in Sept in China, the world’s largest steel manufacturer as Govt pushed for more infra build.
• 9% (YoY) surge in exports to China in September
• Iron ore inventory at ports up from 105-110 MT in July to 124 MT in Sept.

On the other hand, domestic production down –

• Production in April-Sept was at 47 MT, down 50% (YoY)
• 50% of mines auctioned in Odisha used mined iron ore for captive usage
• 93% of the 4.06 MT ore from auctioned mines used for captive use, much lower than target production of 24 MT.
• Only 12 merchant mines in Odisha are currently operational, at least 20 are closed
• All 11 merchant mines in Jharkhand continue to remain shut
• West Bengal has 64 iron and steel mills but not a single unit has more than 15 days of raw material stock available

So, while within the country there is lower production, exports have surged, causing prices to rise as the demand-supply situation is skewed. Also with India itself, demand for steel is huge, led mainly by auto companies and this has further led to an increase in iron ore prices.

This situation could normalize if:

• Supply constraints at Odisha mines are resolved
• There is a short-term ban on exports
• Maybe fix iron ore rates
• Take over closed mines by state or central PSUs and get them started

What’s the outlook?

• Demand is expected to surge and in the current month, in coming days, we could see prices going up further
• International prices to remain high as production in Australia and Brazil to remain subdued
• NMDC could hike prices further as it continues to sell at prices which are lower than international as well as Odisha mine prices.
• Govt intervention, in India and from the Chinese Govt could stop this northward rally in prices as steel prices have made projects unviable.
• Odisha mine issues to get resolved only by Feb – March and till that does not get solved, prices will remain high.
• Only certainty – domestic iron ore prices will remain high but much lower than international prices.