Resumption of Donimalai mines remains the key trigger for NMDC: Analysts

After undertaking price cuts on two to three occasions since December, NMDC hiked prices of both fines and lumps by Rs 400 a tonne, or about 15 per cent, effective February 23.

Rising global iron ore and steel prices led NMDC to take effect these hikes, which should provide it some respite and improve its March quarter (Q4) outlook that otherwise appeared soft amid subdued realisations. Yet, the Street isn’t impressed, given prospects and concerns beyond Q4.

The latest price hikes have been supported by supply disruption at Vale in Brazil, a large global producer, following the accident at its mine. Consequently, the ex-China per tonne price of 62 Fe grade ore has crossed $85 from $75 last month.

Analysts said some price hikes by Odisha’s producers have also benefited NMDC. They added that NMDC should also gain from the inability of domestic merchant miners to increase supplies till March having utilised their approved environmental clearance for FY19.

Moreover, higher global prices are another advantage. NMDC usually exports about 2 million tonnes (MT) of ore in Q4. With global prices remaining supportive, it may help NMDC garner better realisations, says an analyst at a domestic brokerage.

All these have improved expectations for Q4. While NMDC had clocked per-tonne profitability of about Rs 2,475 in Q3, against Rs 1,494 in the year-ago quarter and Rs 1,878 in Q2, the price cuts starting December had led to muted expectations for Q4.

However, while recent events and price hikes do provide some respite, ore prices are still 17-20 per cent lower than levels seen during October and early-December. Further, any blip in Odisha’s ore production is seen to be temporary as producers are expected to expand output in FY20 upon expiry of their mining 
leases.

Thus, NMDC may continue facing intense competition, while concerns over its volumes remain, given disruption at Donimalai due to higher lease rental demanded by the Karnataka government. Analysts at ICICI Securities had already cut their sales volumes estimate to 31 MT for FY19 (from 32.7 MT earlier) and to 28 MT for FY20 (35 MT earlier).

Not surprising then, the stock has hardly gained after the latest price hikes. Analysts believe resumption of the Donimalai mines remains the key trigger.


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