India: OMC changes iron ore auction schedule from Jan'22

• Change in auction cycle to enable better price discovery
  
  
• PSU miner allocating greater volumes at auctions
  
  
• Company's production stands at over 14 mn t in Apr-Nov'21
  
  

State-owned miner Odisha Mining Corporation (OMC) has brought about changes in its monthly iron ore auction cycle, as per latest updates available with SteelMint.

The state-owned miner will henceforth conduct auctions in the middle of every month rather than in the first week of the month. SteelMint reported earlier that over 1.62 million tonnes (mn t) of iron ore - 737,000 t of lump ore and 885,000 t of fines - will be auctioned on 15 Jan'22.

The auctions are being shifted to the middle of every month to enable officials to form a clear idea of the updated price declarations made by merchant miners as part of their F1 returns to the Indian Bureau of Mines (IBM) rather than following relatively old IBM prices, sources informed.

IBM's average sales price (ASP) is a price discovery mechanism wherein the actual transaction price of the leading non-captive mines in a state, sold at arm's length basis, is captured. In short, ASP is the weighted average of the ex-mine prices of merchant mines.

Auctions are a price discovery mechanism for OMC. Around 70% of its production is sold to long-term linkage customers, and the balance 30% is sold via auctions. However, the weighted average prices at the auctions are also applicable for OMC's long-term linkage customers.

Rise in auction allocations

OMC held two iron ore auctions from its different mines in Dec'21 at which over 1.1 mn t of lump ore and 1.8 mn t of fines were allotted.

Importantly, the state PSU miner has increased its total allocation for the monthly auctions in a major way after new mines came its way following months of non-production post the Odisha mineral auctions prior to 31 Mar'20.

The Guali and Jilling-Langalota mines were allotted to OMC under the new mining reforms for a period of 10 years, for which the company has to pay a premium of 1.5 times of royalty (equivalent to 22.5%).

OMC got the two mines after the original bidders failed to commence operations due to disputes and other constraints.

Production edges higher

The merchant miner's total production till Nov in FY'21 was assessed at 14.11 mn t - significantly higher y-o-y. The Guali, Gandhamardan-B and Daitari mines recorded production of 3.33 mn t, 3.2 mn t and 3 mn t, respectively, during the period, while Kurmitar Pahar and Jilling churned out 2.38 mn t and 1.71 mn t of iron ore, respectively.

Till Nov, 41% of OMC's total EC capacity stood utilised in the current fiscal. Also, the fines-lump ratio from all of the company's mines taken together stands at 65:35, SteelMint estimates.

With iron ore production of more than 13 mn t in FY'21, OMC came out as the leading merchant miner in Odisha. In fact, the company exceeded its production target of 12.82 mn t for the fiscal. The miner increased production by over 5% y-o-y compared to 12.38 mn t in FY'20.

Over 34 mn t capacity

The Ministry of Environment, Forest and Climate Change has accorded approval for enhancing the EC limit of OMC's Daitari iron ore mine from 3 mn t to 6 mn t per annum.

OMC has also sought approval for expanding the capacity of the Jilling Langalota mine from 6.28 mn t to 10 mn t per annum and the Guali mine to 30 mn t per annum from 5.7 mn t at present.

The Kurmitar Pahar iron ore mine has been granted permission for EC expansion from 2.4 mn t to 6 mn t per year. OMC has also placed a proposal for increasing the production capacity of the Gandhamrdan A iron ore block from 0.35 mn t to 2.5 mn t per annum.

As a result, OMC's expanded iron ore capacity stands at 34.24 mn t per annum.