India: Karnataka's iron ore e-auction sales drop 35% y-o-y in CY'24

• NMDC's LTA contracts impact total offered volumes in auctions
  
  
• Logistical problems, strikes, extended monsoon, MRT bill affect sales
  
  

Iron ore e-auction sales volumes in Karnataka dropped significantly by around 35% y-o-y to 11.59 million tonnes (mnt) in CY'24 against 17.78 mnt in CY'23, data maintained with BigMint shows. Meanwhile, e-auction sales volumes totalled 1.10 mnt in December, marking a 21% m-o-m decline from 1.4 mnt in November.

The decline in volumes is attributed to miners' preference for direct sales over auctions. Among other reasons are NMDC 's long-term agreement (LTA) along with union strikes by NMDC workers, frequent transportation strikes, a prolonged monsoon, and the announcement of the Mineral Rights and Mineral Bearing Land Tax Bill towards the end of the year, sources informed BigMint.

NMDC tops the chart but volumes drop

• National Mineral Development Corporation (NMDC), India's largest iron ore miner, sold around 8.37 mnt from Karnataka via auctions in CY'24, a sharp y-o-y fall of 33% against 12.49 mnt in CY'23. Meanwhile, sales volumes decreased by around 6% m-o-m in December to 904,000 tonnes (t) against 960,000 t in November. Despite emerging as the top auctioneer during the review period, the miner experienced a significant drop in e-auction sales volumes, attributed to lower offerings, i.e. only around 9 mnt, and a substantial number of auctions receiving no response toward the end of CY'24.
  
  
• Karnataka State Minerals Corporation Limited (KSMCL) emerged as the second-leading miner, selling around 1.39 mnt of iron ore in CY'24, a sharp fall of 46% y-o-y compared to 2.57 mnt in CY'23. Notably, the miner's monthly sales volume also declined sharply by 70% m-o-m to around 58,807 t as against 196,000 t in November.
  
  
• Sandur Manganese and Iron Ores (SMIORE) reported auction sales of 0.99 mnt in CY'24, a drop of around 28% y-o-y from 1.37 mnt sold in CY'23. Meanwhile, the miner's e-auction sales volume in December witnessed a fall of around 33% m-o-m to 58,000 t as against 87,000 t in November.
  
  
• Vedanta sold 0.55 mnt of iron ore in CY'24, a 5% decrease y-o-y as compared to 0.58 mnt in CY'23. In December, the miner's total sales volume stood at 36,000 t, a sharp drop of 57% as against 84,000 t in November.
  
  

Why Karnataka iron ore e-auction sales dropped in CY'24?

• NMDC's Long-Term Agreements (LTA): NMDC adopted a strategy of signing LTA for iron ore sales from its Donimalai mines in Karnataka in December 2023. These LTAs involved contracts with Karnataka-based players, where 80% of the iron ore was sold directly under the agreements, and only 20% was auctioned. This approach, although aimed at stabilising sales volumes and providing price certainty through direct sales while still utilising auctions for price discovery, impacted the offered volumes from the respective mines.
  
  
• NMDC's union agitation: In May 2024, workers of NMDC staged protests demanding wage revisions, leading to disruptions in plant operations across units and affecting dispatches via rake.
  
  
• Frequent transportation strikes: A series of strikes by lorry drivers hindered iron ore dispatches and created logistical challenges. As a result, with growing concerns over supply chain stability, miners reduced the volumes on offer.
  
  
• Logistical difficulties: The extended monsoon in the region saw continuous rainfall, leading to flooded mines. This made it difficult for mining operations to proceed efficiently and workers faced difficulty in operating in such conditions. It also delayed the completion of extraction processes, reducing overall output.
  
  
• MRT bill announcement: The Karnataka government's new tax policy towards the end of last year has caused uncertainty in the mining sector. It includes a INR 1 per tonne tax on mineral-bearing areas in auctioned leases, with an additional INR 100 per tonne tax for iron ore-producing regions. Non-auctioned mines face a tax three times that of the royalty. While aimed at boosting state revenues, the policy raises operational costs for miners and steel producers. As a result, auctions slowed down towards the year-end, with miners waiting for clarity, and buyers are delaying purchases pending further details on the tax structure.
  
  

E-auction prices rise y-o-y in CY'24

The yearly weighted average e-auction prices of iron ore fines (Fe 60%) stood at INR 3,760/t ($43/t) and lumps (10-40 mm, Fe 63%) at INR 4,700/t ($54/t), an increase of INR 750/t ($9/t) and INR 980/t ($11/t), respectively. Prices are on ex-mines basis, excluding royalty, DMF, and NMET. Despite a y-o-y decline in e-auction sales volumes during the year under review, prices rose compared to the previous year. This increase was driven by concerns over the supply of high-grade materials, which led to premium bids in auctions.

However, on a monthly basis, prices of fines and lumps decreased by around INR 300/t ($3/t) and INR 400/t ($5/t), respectively in December. BigMint notes that the monthly average prices were impacted by several factors, including NMDC's announcement of a price cut from its Donimalai mines, the absence of miners in the merchant market, and buyers adopting a wait-and-watch approach following the MRT bill announcement.

Outlook

The proposed MRT is expected to significantly affect Karnataka's mining and steel industries. According to industry sources, demand for steelmaking raw materials in the region is likely to remain subdued. Stakeholders express concerns that the bill could increase mining costs, destabilize the market, and undermine the sector's overall competitiveness. Notably, Karnataka stands as India's 3rd-largest iron ore-producing state, with volumes at 42 million tonnes (mnt) in CY'24.