By Kunal Bose
First, it was the Indian Steel Association (ISA), representing the interest of all important producers of the alloy, that drew the government’s interest to the “testing times” steel-makers—particularly these without the need of ownership of mines—were facing since of the double whammy of a spurt in iron-ore exports and a fall in production, principally in the country’s biggest and finest high-quality ore creating state, Odisha. (Incidentally, Tata Steel left ISA in May, allegedly more than variations on contentious mining policy.) Soon, it became a chorus of protests against iron-ore exports with associations of sponge iron and steel-forgings producers generating widespread trigger with ISA.
Facing increasing displeasure of ministries concerned with infrastructure projects implementation, as also auto and building groups, as steel rates have climbed to multi-year highs and there have been speedy-fire value revisions by steel-makers in the post-lockdown months, ISA has demanded a six-month ban on iron-ore exports, restriction of e-auction sale to steel- and pellet-makers. It has also urged state-owned mining corporations to step up production. Pressure is creating on the Naveen Patnaik administration in Odisha more than the surrender of 3 lately-auctioned mines and more than other individuals exactly where the owners didn’t take the initiative to execute lease-deeds the demand is to assign the deposits to state-owned Odisha Mining Corporation and Odisha Mining Exploration Corporation.
At the auctions, some steel corporations and merchant-miners had quoted fancy premiums for mines whose leases expired in March. Later, they realised that mining operations would not be sustainable if such higher premiums are to be paid on the sale of extracted ore. Didn’t Tata Steel worldwide CEO and managing director Television Narendran say “we certainly will never be bidders at these prices. We thought some bids were unreasonably high”? To continue to stay self-reliant in iron ore as it expands capacity by means of organic and inorganic routes, Tata Steel will definitely stay on the hunt for acquiring new deposits. But as Narendran says, his group’s mine acquisition choices at all instances will be dictated by “prudence.”
Calls for government intervention to rein in rates have grown following MSME and highways minister Nitin Gadkari asking for discussions at the “highest level” to assert if the “55% hike in steel prices in the past six months is justified by rises in cost of raw materials, principally iron ore, labour and power.” But, why the minister suspects that the steel-makers could possibly be indulging in manipulation of production to lift rates is not understandable. In the steel business, exactly where two important players, namely, SAIL and Vizag Steel are government-owned and creating units utilizing blast furnace, electric arc furnace and induction furnace routes are as well numerous, cartelisation or value manipulation is not inside the realm of possibility.
Steel minister Dharmendra Pradhan has presented reassurances that the government was not inclined to “regulate market forces that decide prices,” even though he favoured a ban on ore exports for a offered period. In the din of protests against spikes in ore-rates of iron ore, and consequently, of steel items, reasoning has been sacrificed on the altar of sectoral interests. What is sadly overlooked is iron ore and steel in the downstream are more integral to the worldwide economy than most other commodities. What can bring logic to the discussion is taking account of how rates of ore and steel items are behaving in the planet industry and the things accountable for value spurts.
Iron ore being the most heavily-traded dry cargo globally—India participates each as an exporter and importer—it is only anticipated that rates in the planet industry will leave an effect right here. In the existing decade alone, rates peaked at $187 a tonne in February 2011 and hit $41 a tonne in December 2015. The steel business, which regulates solution rates primarily based on input-expense fluctuations, has had to live with such fluctuation. Chinese steel-makers, with a commanding share of worldwide steel production and accounting for more than two-thirds of seaborne iron-ore provide, want an inquiry on speculation playing a function in the “abnormal rally” major to doubling of rates of the raw components in 2020.
Whatever the function of speculation cash, iron ore, fetching an year-finish value of $175 a tonne on the Dalian Commodity Exchange (DCE), is now the world’s finest performing important commodity for the second year in a row.
DCE has imposed restrictions such as limits on single-day open positions and adjustments of premiums and discounts for futures from time to time. However, the commodity remains on a tear as the Middle Kingdom’s industrial engine is at complete throttle. What has also helped in reviving the demand for steel and, consequently, of iron ore is Beijing directing stimulus funds to infrastructure. Between January and November, the planet steel production was down 1.3% to 1.61 billion tonnes when China boosted output by an impressive 5.5%, to 961.16 million tonnes. Even though India made 3.5% more—9.245 million tonnes in November on a y-o-y basis—the total for the initial 11 months of 2020 shows a fall of 12.3% to 89.4 million tonnes.
In order to help the higher level of steel production and ore stockholding as insurance coverage against provide disruptions, Chinese imports of iron ore till November have been up 10.9% more than the corresponding period the year just before. Incidentally, of India’s iron ore exports of 33.39 million tonnes in between April and October, China was the location for ~90%. According to China’s General Administration of Customs, the country’s ore imports up to November exceeded that of the complete 2019’s by more than one hundred,000 tonnes. Will iron ore rates hold in the close to term? Most analysts assume rates will remain firm in 1Q 2021. In anticipation of a vaccine-associated financial recovery across the planet, Chinese steel mills are unlikely to let up on creating stocks of iron ore. A December landslide at a mine owned by Brazilian Vale and the perennial worry of adverse climate in Australia in the initial quarter disrupting operation of mines and ports really should maintain iron ore rates elevated.
(A former FT correspondent, author is now India Correspondent for Euro Money publication. Metal Market Magazine)