NMDC, the world’s eighth largest iron ore producer, might go in for monthly fixing of iron ore prices, a company official said.

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“We have made a couple of proposals to our consultant, CRU London, and they will give their report at the end of this month. I think revising prices every month will give us better results as international prices are likely to go up in the coming months,” the official told DNA on the condition of anonymity.

Currently, iron ore prices in the spot market are close to $115 per tonne and companies expect long-term contracts at $90-$100 per tonne. NMDC, which has 1.4 billion tonne of iron ore reserves, exports 15%.

The official said, “For our international clients like steelmakers in Japan and South Korea, we are thinking of using a model set by BHP Billiton, Rio Tinto and Vale. These are the world’s top iron ore producers and their contracts with the Japanese steelmakers are benchmarks”.   

Domestic steelmakers are not very happy with this planned move by NMDC. An Indian steelmaker undergoing huge capacity additions said, “This is not good news. NMDC has in the past increased prices out of the contract and we have no other option but to adhere. If they start setting prices every month, we will have to increase steel prices on a monthly basis, which will put pressure on inflation and infrastructural development in the country.”

Another steelmaker said on the condition of anonymity that such a move was inevitable. “Today or tomorrow we will have to shift to it (monthly fixing) instead of annual contracts. With this model, the steel prices will be governed by the market conditions.”

Pawan Burde, vice president (research), PINC Research, said, though this talk has been going on for decades, the probability of its implementation this time is high. “Even coking coal prices have been negotiated on a quarterly basis.”

Burde believes this is a positive for steelmakers as they can better gauge their cost of production and preserve their margins.

“The year before last, coking coal prices were at $300 per tonne and the steel demand crashed. Most of the steelmakers reported losses due to the higher cost of production. If prices are adjusted on a monthly basis, they have the power to negotiate lower prices when the demand is low,” he said.

NMDC, which already has the lowest cost of production in the world, at $7.6 per tonne, is looking to reduce its costs further. Rana Som, chairman cum managing director, NMDC, said, “We are looking to increase our iron ore production to 50 million tonne by 2014-15 from 30 million tonne currently. This increased production will help us to reduce the cost of production further.”