Steel prodn cost may rise on higher iron ore prices: Icra

The cost of domestic steel production is expected to rise by around Rs 800 to Rs 1,000 per metric tonne (MT) due to a jump in iron ore price following closure of six iron ore mines in Odisha, according to a report.

"The closure of six iron ore mines in Odisha from January 1 due to non-payment of compensation to the state government before the deadline of December 31, has created a supply shortage of around 5.5 MT in the current quarter, which led to lump ore prices rallying sequentially by around Rs 400-500 per MT in January 2018. This is expected to result in a rise in cost of steel production by around Rs 800-1000/MT," Icra said in its report here.

However, the domestic supply of iron ore is significantly higher at 203 MT than its overall consumption of 155 MT in FY18, which reaffirms its belief that iron ore prices are unlikely to increase further significantly over the medium-term, the report said.

ICRA notes that the larger Odisha-based miners which have delayed making compensation payments, have either already deposited the compensation demanded by the state government in January 2018, or are in the process of arranging funds, and are therefore likely to pay the same shortly, given the buoyant ore prices currently.

Following the failure to pay compensation amounting to 100 per cent of the value of iron ore mined illegally earlier within the deadline of December 31, the Odisha government ordered "temporary discontinuation of operations" at six iron ore mines in the state having a cumulative rated capacity of around 23 million tonne per annum (MTPA). This move has created a supply shortage of around 5.5 MTPA in the current quarter, as a result of which domestic iron ore prices rose by Rs 400-500/MT

Lump ore prices in Odisha have also increased sequentially by Rs 400 per MT in January 2018. Moreover, following the shortage in Odisha, NMDC has announced a rise in lump and fines prices from its Chhattisgarh mines by Rs 500 per MT in January 2018. After taking into account the applicable duties and taxes, this increase is expected to lead to a rise in cost of steel production by around Rs 800-1000 per MT, Icra said.

Odisha is the country's largest iron ore producer, accounting for over 50 per cent of the domestic production. Aided by a change in regulatory regime following the operationalisation of "The Mines And Minerals (Development And Regulation) Amendment Act, 2015", iron ore production in Odisha steadily increased from 52 MT in FY2015 to 99.6 MT in FY2017, registering a robust compounded annual growth rate of 38.4 per cent during this period.

The closed mines include those belonging to Essel Mining and Industries, a part of the Aditya Birla Group, Serajuddin Mines, The Industrial Development Corporation of Odisha and Mideast Integrated Steels, among others.

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

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