India to announce iron-ore pricing mechanism next month

KOLKATA (miningweekly.com) – A committee appointed by the Indian government will submit its report of recommendations on a domestic pricing mechanism for iron-ore next month, raising the spectre that the free pricing regime for natural resources might be coming to an end, or could face limitations.

A Steel Ministry official said the committee's recommendations would coincide with the government finalising a new National Steel Policy and any proposed pricing regime for iron-ore would be aimed at ensuring the availability of "competitively" priced raw material to domestic steel mills.

He said that while the committee had been mandated to frame an iron-ore pricing mechanism for private miners, the government was also considering the establishment of an advisory committee for State-owned iron-ore miner NMDC Limited.

In a media statement, Steel Minister Chaudhary Birendra Singh said the government did not want so much volatility in the iron-ore market and wanted iron-ore prices to be as competitive as possible for steel companies.

Mining Weekly Online reported earlier this month that while a definitive cap on the selling price of iron-ore was unlikely, options before the committee included setting a price band within which iron prices would be allowed to fluctuate or adopting a cost plus formula that all iron-ore miners would have to adopt in setting their market selling price.

At the same time, the Steel Ministry, in communication with its counterparts in the Coal Ministry, has taken up steel companies’ complaint over rising coking coal prices.

However, a Steel Ministry official acknowledged that controlling coking coal prices would be a "greater challenge", considering that Coal India Limited’s wholly owned subsidiary, Bharat Coking Coal, was the sole producer in the country, accounting for just 20% of domestic supplies, while steel mills were dependent on imports for the balance.

Domestic coking coal prices are set by the miner or based on supply contracts, but the Steel Ministry is pushing for scrapping of the 2.5% import duty and clean coal cess to reduce price incidence on consumers in the steel sector.

But the prospects of government intervention in raw material prices have already raised hackles of private miners, particularly in iron-ore mining.

An official in the Federation of Indian Mineral Industries said there was no logic in imposing a pricing curb at one end of the production chain while continuing with free pricing at the other end.

He said that if government went ahead with placing limits on iron-ore prices, the government should also impose similar restrictions on finished steel, adding that pricing limits on iron-ore would "spell doom for the industry and abort the recovery seen in production growth over the last year”.

While official figures for the current fiscal were yet to be announced, according to mining industry estimates, Indian iron-ore production during 2016/17 is expected to touch 180-million tonnes, the highest since 2010/11 when it was pegged at 207-million tonnes. The higher production expected in the current fiscal year comes on back of 155-million tonnes achieved in 2015/16.