India: Karnataka's iron ore e-auction sales volumes drop by 10% y-o-y in FY'24

Karnataka iron ore e-auction sales volumes declined by 10% y-o-y to 16.15 million tonnes (mnt) in current fiscal year 2024 against 18 mnt in the previous fiscal year 2023, as per BigMint data. Out of the total volume of iron ore sold via auctions, nearly 10 mnt of fines, and around 6 mnt of lumps were sold during the fiscal year 2024.

Furthermore, the total sales volume of e-auction iron ore was recorded at 0.28 mnt in the month of March, 2024, significant drop of 76% m-o-m compared to the sales volume of around 1.17 mnt in the previous month. Out of the total volume of iron ore sold via auctions, 132,000 tonnes (t) of fines, and 153,000 t of lumps were sold during the month.

Reasons for downfall in Karnataka iron ore e-auction sales volumes:

Miners opt for direct sales rather than auction- Iron ore e-auction sales volumes have seen a drop since the beginning of the year amid market players shifting their preference to direct sales. NMDC has followed suit, and signed long term agreement (LTA) for iron ore sales from its Donimalai mines in Karnataka, sources informed BigMint. The LTA, which have been signed with a few Karnataka-based players, will follow a 80:20 rule in which 20% of iron ore will be put into auction with the objective of price discovery while the rest 80% will be offered under the long-term agreement. Followed by this other miners in the region also prioritised direct sales mode over auction, results in downfall of trade volumes via auction.

Exports pick up- Export notably is most probably the another factor in financial year 2024 (FY'2024). Around 4 mnt iron ore export were recorded from Krishnapatnam port, pressurised the trade volumes in the domestic market.

On 20 May, 2022, the Supreme Court of India lifted export restrictions on iron ore from Karnataka and removed all sales limitations in the districts of Bellary, Chitradurga, and Tumkur. These restrictions were initially imposed due to extensive encroachment on forest land by mining companies and illegal mining activities in 2011.

Miners' iron ore sales via auction outcomes:

• NMDC emerged as the leading miner, as it sold around 11.2 mnt in the fiscal year 2024, hike of around 12% y-o-y as compared with 10 mnt in FY'2023. Whereas, it sold around 77,000 t in March 2024, recording a downfall of around 90% m-o-m as compared to 835,000 t in February 2024. Out of the total volume of iron ore, 48,000 t of fines, and 29,000 t of lumps were sold during the month.
  
  
• KSMCL sold around 2.9 mnt in the fiscal year 2024, recording a significant hike of 123% y-o-y against 1.3 mnt in FY'23. In addition, it auctioned 132,000 t of iron ore via auctions in March, 2024. However, sales recorded a drop of 17.5% m-o-m against 160,000 t in February, 2024.
  
  
• SMIORE sold 1.21 mnt in the fiscal year 2024, rise of 100% y-o-y against 625,000 t in FY'2023. Notably, it has been observed that the miner has not scheduled any iron ore auction in March 2024.
  
  
• Vedanta sold 416,000 t of iron ore via auction in FY'2024, a significant drop of around 87% y-o-y against 3.2 mnt in FY'2023. However, 48,000 t of iron ore sales in March 2024, recording three times hike in the sales volumes as compared with the previous month sales volume of around 12,000 t. Notably, Vedanta has exported around 6.3 mnt in the last FY'24.
  
  
• SKMEPL recorded 276,000 t of iron ore sales in FY'2024 and 240,370 t of iron ore sales in FY'2023.
  
  

Company-wise table for FY'24 vs FY'23

Iron ore prices increase y-o-y: The yearly weighted average prices of iron ore lumps and fines dropped y-o-y. Weighted average prices of Fe 60% fines stood at INR 3,408/t in FY'24, a drop of around INR 800/t y-o-y against INR 2,600/t in FY'23. Meanwhile, weighted average prices of Fe 63% lump prices at INR 4,950/t, a decrease of INR 1,450/t y-o-y against INR 3,500/t in FY'23. Prices are exclusive of taxes.

Outlook: In the new financial year, Karnataka is anticipated to shift more towards direct sales rather than relying heavily on auctions. Nevertheless, some miners may still opt for the e-auction route. The market could potentially experience volatility due to rising production limits and opportunities in exports.