Odisha vs Karnataka iron ore: NMDC may have to cut prices due to glut

With sale of iron ore from Karnataka mines, including state-owned NMDC, having fallen sharply, miners may have to cut prices of the raw material in order to clamp down the glut situation, industry officials and brokerages said on Monday. State-owned iron ore miner, NMDC Ltd has the highest contribution to Karnataka's iron ore production which now stands at a ceiling of 35 million tonne from 30 million earlier. NMDC produces about 12 million tonne ore annually from its Donimalai mine in the state.

“There is no option but to lower ore prices if the material has to get lifted. This may not happen immediately but over a period of three to six months, we see iron ore prices correcting in Karnataka,” said a senior Mumbai-based analyst on condition of anonymity. Currently, Karnataka iron ore is priced close to Rs 3,000 per tonne as against the Odisha ore which is close to Rs 1,600.

“Karnataka ore price is (even usually) higher than Odisha because demand is much strong compared to supply in this state. Since the state has a ceiling for production, there is always shortage of ore and hence prices are always beefy here,” H Khayyumali, director of Federation of Indian Mineral Industries (South) told Business Standard.

Apart from NMDC, Anil Agarwal-led Vedanta, MSPL Limited and  Bellary Iron Ore pvt ltd are some of the iron ore miners in Karnataka.

The total capacity of Karnataka iron ore mines can be extended upto 40-45 million tonne. In 2016-17 and 2017-18 the state produced around 27-28 million every year.

“There is no discussion with regard to price revision of Karnataka ore at the moment,” informed Sumeet Dev, general manager-commercial at NMDC without divulging much information. The steel manufacturing industry in Karnataka is, however, of the view that miners should align their prices taking the quality of ore into consideration.

“The ore in Odisha is 62-63 fe (ferrous) grade whereas Karnataka ore is much lower at about 59.5 fe grade. Moreover, with higher moisture, alumina, and silica content in the ore, the Karnataka ore is feeble on several quality parameters compared to the Odisha or imported ore.  With this kind of inferior quality ore, the price at which Karnataka ore is being sold to the steel industry is not justified," explained Seshagiri Rao, group chief financial officer and joint managing director of JSW Steel.

Sajjan Jindal-led JSW Steel is the largest buyer of Karnataka ore and it lifts about 60-70 percent of the produced ore to cater to its 12 million plant at Vijay nagar.

Kalyani Steel and Kirloskars among others are some of the smaller steel manufacturers in Karnataka state that lift the auctioned ore. 

“Though on the face of it, it may look like JSW is buying outside ore at a higher price than Karnataka, the benefit in productivity due to superior quality ore works out at Rs 2,600-2,700 per tonne. This is my gains in operations. And so, overall it works out to be cheaper for JSW,” explained Rao.

The company was said to be buying imported and Odisha iron ore for a price at about Rs 4,000-4,500 per tonne as against Karnataka ore for Rs 3,000 per tonne.

“We have been buying NMDC ore since 2011 for Karnataka plant as we had no option. Now that we have tested and figured that buying from outside is more beneficial and productivity is better, we have chosen the other option,” Rao informed.

The benefits experienced by JSW production team by sourcing ore from outside has been tremendous especially in terms of blast furnace production, lower slag volumes due to low impurities, lower fuel rates due to low alumina and consistent qualities and increased efficiency of operations due to certainty of feed mix.

"The productivity benefits have brought us to a conclusion that sourcing material outside Karnataka is far better than using inferior material at such inflated prices," said Rao.

India has three major iron ore regions --Odisha, Chhattisgarh and Karnataka. Iron ore is the key raw material used in the making of steel.

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