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We expect 25-26 mt iron ore volumes this fiscal: NMDC

C S Verma, chairman, NMDC says that the decision to reduce the lump price is based on demand conditions. Iron ore lumps constitute roughly 25% of NMDC’s sales mix. Global iron ore prices are hovering around $140-145 per tonne. For the next few months, international iron ore price are expected to remain stable.

Why did you need to cut prices by around 5-6% in some grades? Can you take us through the logic behind that?

Out of the total production of iron ore in NMDC, about 70-75% is production of iron ore fine and remaining 25% is iron ore lump. There is no cut in price of iron ore fine. Iron ore fines price for January also remains at same as it was in December last year. i.e Rs 2,610 per tonne. In case of lump there has been a reduction of Rs 320 per tonne in January.

Our January price for iron ore lump is Rs 5,060 per tonne against Rs 5,380 per tonne in December 2012. Looking at the demand and supply scenario, there has to be a gap which market can absorb between fine and lump prices. Taking the view of larger market, the prevailing market prices in domestic market and other issues affecting production, investor, we took a decision to reduce price of lump by Rs 320 per tonne in January.

What should one expect with the price of fines going forward over the next three-four months, any major changes you expect there?

Historically, in April 2011 iron ore price in the international market were to the level of about USD 180-190 per tonne. In April 2012, it was at USD 150 per tonne and then it fell to a lower level of less than USD 100 per tonne in September 2012. It is now hovering around USD 140-145 per tonne. In the next three-four months, the price is expected to remain stable. I am not expecting any sharp increase or decrease in iron ore prices.

What about volumes? Volumes have been a bit sluggish. Do you expect to cross that 27 million tonnes that you did in 2012 this year?

We can expect volumes to reach about 25-26 million tonnes. The biggest setback for volume has not been production, but because of dispatch. Our slurry pipeline which was being used by Essar and they were lifting more than one million tonne. Now that pipeline has been damaged and it is lying unoperational from last one year. So, this is affecting evacuation of that metal. We are expecting about 25-26 million tonne during this fiscal.

You have been working on your pricing strategy with KPMG for a monthly iron ore pricing index. By when will we see resolution on that front?

We are expecting the draft report to be available to us in next one month time. Our board will discuss the recommendations of KPMG and then we will take a final view. Earlier we were following the netback system of pricing of the iron ore in the domestic market, but when the export duty became 30% from 20% then the netback system was not yielding any result, so we shifted to quarterly pricing mechanism in the domestic market.

In the last three months since there was a high degree of volatility in the iron ore prices in the market we shifted to monthly price regiment. When follow the monthly price regiment and 95% our sales happens through long-term customers, there have been concerns expressed by the customers that we have to have more stable price regiment.

We have appointed KPMG, they are studying various aspects and in next one month we should be getting their report.

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