Tenure issues delay NMDC ore contracts

NMDC, India’s largest iron ore miner, hasn’t signed contracts with local steelmakers yet and expects a clear picture to emerge only by the end of May. The confusion is essentially about the tenure of the contracts.

Miners sign long-term (normally 5-6 years) contracts with steelmakers with regard to quantity, and prices are renewed every year.

However, earlier this year, global mining giants Vale, BHP Billiton and Rio Tinto decided to renew prices every three months in the wake of the volatility surrounding the raw material prices.

Rana Som, chairman cum managing director, NMDC said, “CRU (the London-based independent metals analyst), our consultant, has given its report to us and we are examining the cost implications of all options. By the end of May, we should know better,” he said.

Som did not comment on whether the contracts will be signed on a quarterly basis but hinted that the domestic miner will follow the global trend.

“The broad indication is that we will follow the quarterly price system,” he said.

He confirmed provisional iron ore prices have been communicated to the steelmakers and there has been a 54-55% hike.

“We are expecting iron ore prices for our long-term contracts to be 88% higher for lumps and 90% higher than the last year’s benchmark prices for iron ore fines,” he said.   

Meanwhile the delay in signing contracts by NMDC is making steelmakers restless.

The company supplies iron ore to JSW Steel, Ispat Industries and Essar Steel, among others.

Domestic biggies like Tata Steel and Steel Authority of India (Sail) have captive iron ore resources.

“We are still awaiting communication from the miner. Yes they have notified provisional prices which have been revised upwards 34-56%,” an Essar Steel spokesperson told DNA Money.

Anil Sureka, director (finance), Ispat Industries, said his company is also in waiting. “Nothing has been communicated to us as yet whether the contract will be quarterly, yearly or there will be some other mechanism,” he said.

Meanwhile, Som refuted steel companies’ claims that the hike in raw material prices (iron ore and coking cola) was leading to them increasing prices.

He said the cost of iron ore in per steel production is marginal and “a 90% hike in iron ore price will be lead to an about Rs 800 per tonne price pressure for steel makers, which is not too much.”

The steel ministry has already raised concerns over the increase in steel prices over the past few months.