Indian steel producers seek auction of stockpiled iron-ore to prevent hoarding

KOLKATA (miningweekly.com) – Indian steel producers have called for the immediate auction of the country’s estimated 128-million-ton iron-ore stockpile to avoid hoarding.

Domestic steel producers believe the imminent rise in production across iron-ore-bearing provinces, combined with falling overseas shipments and depressed prices, could result in a “scarcity amidst plenty”, as miners hold on to pit-head stocks and artificially push up prices.

The Indian Chamber of Commerce (ICC), representing a large number of steel companies, stated in a communication to the Mines and Steel Ministry that Odisha alone accounted for 77-million tons of the total ore stockpile. It called on the government to issue a directive to local governments to start auctions and liquidate stocks ahead of a rise in production over the next few months.

Steel producers also warned that stock withholding and a skewed supply-side in the absence of an auction, would result in negotiated prices between miners and steel producers rising disproportionately and, thereby, putting further strain on steel producers that were already battling falling finished product prices.

The ICC pointed out to government a sharp discrepancy between the rate at which steel prices fall and that of iron-ore prices, indicating that miners were not reducing raw material prices in conjunction with market conditions.

The official said that the ICC had demanded that the Ministry of Steel and Mines issue a directive that the reserve price of iron-ore sold through auction be fixed on a cost of production basis, which would level the playing field between the price of finished products and raw materials.

According to officials in the Odisha government, more mines were getting back into production in the region and the province was expected to close the current financial year ending March 31, with output of 70-million tons of iron-ore, up from 52-million tons in previous financial year.

At the same time, the Federation of Indian Mineral Industries (FIMI) had forecast iron-ore exports in the current year would continue to decline and it expected exports to be lower than the eight-million tons shipped overseas last year, further aggravating over-supply in domestic markets.

Several raw consumers, such as the Pellet Manufacturers’ Association of India (PMAI), have claimed that reserve prices at auctions, conducted periodically by agencies of provincial governments, did not reflect supply-side dynamics, or prevailing international prices. It was pointed out that determinants of fixing the reserve price of the auction were opaque and were fixed to ensure maximum margin realisations for miners.

The PMAI said that government intervention was urgently needed to ensure that auctions reflected current market dynamics while liquidating stockpiled iron-ore for the raw material security and price competitiveness of downstream industries.