India: Sponge iron producers in Chhattisgarh reduce NMDC iron ore sourcing in Aug'21

Chhattisgarh-based sponge iron plants and secondary steel producers decreased iron ore sourcing from India's leading merchant iron ore producer, National Mineral Development Corporation (NMDC), in Aug'21 compared to Jul, as per SteelMint data.

NMDC's iron ore rake movements to Chhattisgarh-based units were recorded at 41 in Aug compared to 66 a month ago - a decrease of 36%, m-o-m. NMDC recorded total rake movements from its Bailadila mines in Chhattisgarh at 346 in Aug against 339 in Jul.

Market expects price correction

Iron ore sourcing by plants in Chhattisgarh declined due to prevailing market expectations of an imminent correction in prices. NMDC had slashed iron ore prices for Aug deliveries by INR 200-350/t in the beginning of the month. Drop in bids at OMC's iron ore lump e-auction, along with the decline in global iron ore prices by around 25-26% since Jun, triggered the revision in offers.

However, the weak response elicited by OMC auctions in end-Aug has created the impression that another price cut is highly likely. This is the reason for Chhattisgarh-based consumers to hold back purchases waiting for prices to drop.

Preference for pellets

In addition, iron ore sourcing by Chhattisgarh-based sponge iron units inched down as preference tilted towards pellets. On a substitute parity basis, pellets are turning out to be more economical for sponge manufacturers than iron ore lumps, with prices decreasing by 20-25% in the Raipur market since the highs witnessed in mid-May. PELLEX, SteelMint's bi-weekly iron ore pellet (Fe 63%) index for the key central Indian market of Raipur, recorded total traded quantity at 125,000 t in Aug'21 compared to about 71,000 t in the preceding month, a rise of over 76% m-o-m.

Chhattisgarh-based mills are long-term customers of NMDC and have a quota of around 2 mn t of iron ore per annum. Sponge iron players prefer direct reduced calibrated lump ore (DR CLO). Market participants are awaiting a price correction to be announced by NMDC in the first week of Sept'21.

Although sales slumped around 12% on a monthly basis in Aug, NMDC's iron ore production stood at 3.06 mn t in the month. Apr-Aug'21 production has crossed the 15 mn t mark, as per data maintained with SteelMint. NMDC targets 44 mn t of iron ore production in FY'22.