India: OMC raises base price by 7-31% for upcoming iron ore e-auctions

State-run Odisha Mining Corporation (OMC) has scheduled an auction for iron ore fines and lumps on 16 Feb'22. Around 627,000 t of iron ore lumps and 1.109 mnt of fines will be put up for auction from OMC's mines. The miner has raised the base price for fines by INR 400-1,000/t (13-35%) against the last auction on 15 Jan'22 and that for lumps has been increased by INR 400-1,800/t (7-31%).

Factors behind the price hike:

• Exhausted EC limits at few merchant mines - The market participants informed that there are limited offers for high-grade ore (Fe 63%) in the market, with a few mines having exhausted their EC limits with fiscal year-end approaching
  
  
• Indian iron ore & pellet export prices up on global rally - Chinese spot iron ore fines Fe 62% prices opened at $149.40/t CNF China for the week and assessed at $150.15/t, CNF China towards the weekend after rising to $154/t towards mid-week. SteelMint's weekly index for India's low-grade iron ore fines (Fe 57%) exports stood at $60/t FOB east coast on 10 Feb'22, up by $17/t w-o-w, the highest in six months. Iron ore exports have witnessed growing momentum after China re-entered the market post CNY holidays.
  
  

Similarly, pellet export prices from India have risen by $5-10/t w-o-w. Hike in pellet offers and sponge iron prices amid rising export realisations were the key reasons behind the hike in base price. SteelMint's bi-weekly domestic pellet (Fe 63%) index stood at INR 11,450/t loaded to wagons, Barbil on 11 Feb, up by around INR 1,500/t m-o-m.

Change in OMC's auction schedule - State-owned miner Odisha Mining Corporation (OMC) has brought about changes in its monthly iron ore auction cycle, as reported by SteelMint. 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.

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

The miner raised production sharply by 65% y-o-y to 20.24 mnt in CY'21 from 12.25 mnt in 2020. Notably, the allocation of auctioned yet non-operational mines to OMC contributed to the rise in the miner's overall production.