Will NMDC cut iron ore prices further in June? SteelMint analysis

It is expected that NMDC, under current circumstances, may revise its iron ore prices downward in its monthly revision which is due in early June.

On 25 May, the miner cut offers where fines prices dropped by INR 750/t and that of DR-CLO by INR 720/t. Prices fell to around four-month lows.

SteelMint has recently started a new feature of predictive analysis, where correlation between certain "predictors"/parameters/market or price influencers give an indication of future price movements of a particular commodity. SteelMint has studied NMDC's price data for the last five years to identify 21 parameters/ influencers which, it feels, are highly correlated, directly or indirectly, with its iron ore price movements.

The predictive price estimation is based on data metrics and co-relations that impact the company's pricing decision such as domestic and global iron ore prices, prices of metallics as well as domestic semi-finished and finished steel.

In the current study, out of top 7 parameters, 6 are reflecting a downtrend at present, and it can be assumed that NMDC is most likely to reduce iron ore prices further for June dispatches.

Factors impacting iron ore prices

SteelMint's index for Fe 63% fines from Odisha were down 13% to INR 5,380/t (INR 6,190/t) while the Fe63% lumps (Odisha) dropped 12% to INR 7,850/t (INR 8,890/t). Fe63% pellets (DAP Raipur) lost 16% m-o-m to INR 10,020/t (INR 11,930/t). The iron ore price drops were propelled by weak demand for semis, and finished steel. Falling steel margins in China led to demand for low grade ore, which dampened sentiments for higher grades further. The export duty impacted export sentiments.

Subdued pellet export offers and fall in sponge iron prices also contributed to weak sentiments. Pellet makers in Raipur reduced prices on weak demand and falling sponge iron prices. Earlier, buyers were not keen to accept the higher offers especially since material from Odisha looked cheaper. The price drop also happened amid decrease in pellet export offers, especially after the government slapped a steep 45% export duty on the material to control soaring steel prices. Buyers stayed away, waiting for pellet prices to fall further.

SteelMint understands that iron ore prices are likely to see sharp correction from the current levels.