NMDC planning quarterly contracts with steel cos

In a move that could trigger anxiety among domestic steel utilities,state-owned National Mineral Development Corporation...

In a move that could trigger anxiety among domestic steel utilities,state-owned National Mineral Development Corporation (NMDC),the countrys biggest iron ore producer,is all set to introduce quarterly pricing mechanism for domestic buyers beginning July 1. NMDCs global counterparts BHP Billiton and Rio Tinto have started entering into quarterly contracts since April this year.

If the navratna companys board approves this proposal on July 30,the domestic consumers that currently have annual contracts with NMDC,may have to shell out more. For the second quarter of this financial year beginning July,NMDC would sign quarterly agreement with the negotiator for Japanese steel mills (JSMs) at a price,which is 22 per cent higher than the current price. So far as its domestic buyers are concerned,the PSU would seek the approval of its Board on July 30 for introducing the quarterly contract system,but the prices would be lower than those for JSMs, a top Steel Ministry official told The Indian Express.

As of now the PSUs net realisation was about Rs 3,100 per tonne from Japan and after the proposed agreement,the proposed price for July-September quarter would be up to Rs 3,700 a tonne. The mining giant had already doubled its prices for the first quarter to Rs 3,100 from Rs 1,600 per tonne. But for its Indian buyers,mainly steel plants,the navratna company was currently busy evolving an acceptable mechanism,which would be lower than the JSM prices. There is a possibility that the prices could be introduced with retrospective effect,the official said. NMDCs domestic consumers pay 10-15 per cent less than its overseas buyers. Even if domestic prices are hiked on quarterly basis,still it would be 10-15 per cent less than increased JSM prices, the official,who did not wish to be quoted,said. The company has planned to produce about 30 million tonnes of ore this fiscal year,up from its 2009-10 output of 24 million tonnes. Last year,India produced 220 Million Tonnes (MT) of iron ore,of which nearly 106 MT was exported. NMDC,as part of its long-term export commitments sold nearly 3 MT to JSMs.

For its domestic buyers,most of whom are steel manufacturers,NMDC is the biggest supplier of iron ore. Introduction of quarterly contracts would be hard on them since most companies are reeling under the impact of rising input costs. Though producers like Steel Authority of India Limited (SAIL) and Tata Steel would not be impacted given their captive sources of supply,companies including Essar,Ispat and Rashtriya Ispat Nigam Limited (RINL) would be hit.