NMDC hike defies trend; Blame ‘policy’

NMDC sets prices of its iron ore and other minerals based on a formulaic application of its policy, and not according to prevailing market forces globally.

Meaning, its prices can go northward if the global trend is toward south, and vice-versa.

Currently, global prices are down due to a slowdown in Chinese offtake. Overall negative trends in the global steel sector are not helping matters either.

But NMDC’s iron ore prices are now higher than global levels, thanks to a recent, much-criticised quarterly hike — of lumps by 13% and fines by 8% — determined by, well, “policy”.

Thus, the effective cost of lumps rose to Rs3,030 from Rs2,800; fines are up at Rs6,190 per tonne from Rs5,480.

But the company is likely to lower them during its next quarter revision starting October 2012.

NMDC sources said the company policy is such that its prices cannot be benchmarked to market prices on a day-to-day basis.

“The company’s pricing policy has nothing to do with spot prices or any other yardstick. NMDC has a one-quarter lag in fixing the prices. The company takes the average price of the previous quarter with a one-month gap. The current price hike is based on the average price during March-May quarter leaving June. Based on this data, the price for July-September quarter was fixed. Whether it is good or bad or even defying global trends, that’s immaterial. There is a policy and it has to be complied with,” a senior NMDC official said.

Based on this policy, the company is likely to lower its prices for the October-December quarter.

“We have seen the trends in the June-August quarter and the prices were moving down. Considering the average of these prices, NMDC would do a downward revision again in the second half of September. These prices would be applicable for the October quarter,” the source said.

NMDC’s market-defying prices have caused dismay among India’s steelmakers. In fact, some steel majors have said they would prefer iron ore imports to buying from NMDC.

Analysts, too, said that the upward revision would have an impact on the company’s earnings. However, the NMDC source said that the revision would not have much impact on the profit-and-loss statement.

“These prices are for long-term contracts. So, if someone is buying from the spot market, that customer would never depend on supplies from NMDC. Moreover, market-defying revisions are not new. When global prices were moving up, NMDC had revised them downward. No one asked any questions at that time. So, it is not correct to conclude that NMDC is defying the trend. The price revision has a formula and a policy. Being a public sector company, NMDC has to comply,” the source said.