NMDC resists steel cos’ demand to cut ore prices

KOLKATA: The tussle between government and domestic steel companies over raising steel prices threatens to claim an unlikely victim — the largest public sector iron ore producer National Mineral Development Corporation (NMDC).

The company has strongly protested the demand by a clutch of private sector steel majors to reduce the price of domestic iron ore charged by NMDC. The company’s protest is in response to lower net sales realisation due to imposition of export levy of Rs 300 per tonne on iron ore exports. The demand, it is learnt, is linked to the decision taken by leading steel companies to hold back for a month a proposed Rs 500-Rs 2,000 per tonne hike in prices.

“In our view there is no basis to any demand for a price cut in the domestic market, because of a lower net sales realisation in export market. Domestic prices are fixed according to a formula stipulated by the government based on P Ganeshan committee’s recommendations,” an NMDC source told ET.

As per the formula, there is a basic price which is fixed and agreed between NMDC and the buyer. The variation in international price is factored into the domestic price. Net sales realisation is defined as the differnece between FOB price and the export levy.

In the domestic market, NMDC sold iron ore fines at Rs 1,114 per tonne during 2006-07, which was also the cheapest price among Indian producers. This year, NMDC has decided to hike it to Rs 1,220 per tonne, which is still likely to be the lowest price.

Private sector steel companies, however, are in favour of a price cut. Together they bought some 20 million tonne (mt) of iron ore from NMDC last year, accounting for the bulk of its production of 23 mt during 2006-07. NMDC exported the remaining 3 mt to steel mills in Japan and Korea. This year, NMDC hopes to raise production to 26 mt.