India: NMDC hikes iron ore price by 10-11% amid supply imbalance post Odisha auctions

State-owned iron ore miner National Mineral Development Corporation (NMDC) has increased prices by INR 290-340/t for Sep'20. The prices for Baila lump and fines have been increased by INR 300/t and that of DR CLO by INR 340/t. Domestic iron ore prices in India have rallied on limited merchant availability in Odisha as most of the auctioned mines are yet to resume production.

The revised prices for Baila fines stands at INR 2,960/t, lump prices assessed at INR 3,250/t and DR CLO at INR 3,770/t. NMDC sets prices on a free-on-road (FoR) basis and does not include royalty and taxes. The miner continued to raise price after two successive price hikes in Aug '20.

Reasons behind hike in prices -

• Global price hike -
  Strong seaborne iron ore prices and escalating domestic steel prices form the immediate backdrop to the price hike, it is believed. Spot iron ore price rise to over 6.5 years high on strong demand. Spot iron ore prices continued to rally on strong demand for medium grades. Price of Fe 62% fines was assessed at $130.80/t, CNF China, increased by $2.75 d-o-d. Firm end-user demand for mainstream Australian fines and limited portside inventory continued to support prices.
  
  
• Supply tightness in Odisha -
  The persistent supply imbalance in Odisha due to 14 of the 19 newly auctioned mines failing to start operations has resulted in production loss of around 4 mn t per month. The supply squeeze in Odisha, which contributes over 50% of the country's annual iron ore output, is evident. Total production from 5 auctioned mines (4 mines of JSW and 1 mine of AMNS) was at 1.5 mn t during Apr-Jul'20 against target production of 17.4 mn t pa
  
  
• Recent OMC's auction fetched hike in bids -
  Orissa Mining Corporation's auctions of 492,000 t iron ore held on 3rd Sep'20, as reported by SteelMint, received a surprisingly high premium of INR 800-2,050/t over the base price .
  
  
• Fall in NMDC's iron ore output amid monsoons -
  NMDC recorded iron ore production of 1.62 mn t in Aug'20, down 26% on a monthly basis compared to 2.19 mn t in July'20. However, on a yearly basis sales increased 15% compared to 1.41 mn t in Aug'19. Sources highlighted that heavy rains resulted in lower iron ore production.
  
  
• Hike in Indian steel prices -
  Indian steel manufacturers have increased domestic HRC prices by INR 2,000/t ($27) for Sept'20 deliveries. Prices have moved up on the back of supply concerns due to maintenance shutdowns and hike in global steel prices.