Iron ore prices to remain subdued on weak demand

Issued at 2020-04-22

Iron ore prices are expected to remain subdued despite disruption in mining activities in merchant mines auctioned recently and substantially high premiums paid by winning bidders in auctions.

Moreover, iron ore demand from steel companies is expected to remain low as most of the steel companies have amassed huge iron ore inventory of 3-4 months fearing shortage in supply as about 30 iron ore mining leases expired in March.

The recent lockdown to combat Covid outbreak will have a major impact on steel production itself. Steel consumption was up just 1.3 per cent in FY’20 against earlier estimate of five per cent and a high growth of 8.8 per cent logged in FY’19. Demand for steel slumped further in March.

Iron ore prices surged sharply in the first half of last fiscal on back of production outages in Australia and Brazil but started falling due to weak demand, said Madan Sabnavis, Chief Economist, Care Ratings.

International iron ore prices rose from $76 a tonne in last January to a high of $120 in July 2019.

However, with the outbreak of the coronavirus, demand for iron ore again started to shrink due to lockdown measures and prices slumped to $89 a tonne in March against $96 in January, he said.

Huge premium in mine auction

Meanwhile, iron ore mining leases of over 30 mines largely in Odisha accounting for almost 30 per cent of mine output expired in March.

Of about 25 non-captive iron ore mines, 22 were auctioned in February. However, transfer of three mining leases was put on hold due to pending legal suit in the Supreme Court.

Odisha successfully auctioned 19 operating iron ore mines in February which belonged to merchant miners. The winning bids premium ranged between 91 per cent and 154 per cent.

JSW Steel secured four iron ore mines with reserves linkage of over 1,100 million tonnes in Odisha.

ArcelorMittal won the Thakurani mine, at a premium of 107 per cent. Jindal Steel & Power bagged the Guali mine at a premium of 144 per cent.

Winning bidders need to pay additional levy of about 17 per cent over and above the premiums.