India’s attempts to set benchmark iron-ore price remain a nonstarter

KOLKATA (miningweekly.com) – India’s exercise to set a benchmark iron-ore price is likely to remain work in progress, if not be relegated to the backburner, in the absence of any consensus within government and industry.

The Mines Ministry has mooted and initiated processes to evolve a benchmark iron-ore price, based on the weighted average of the international price of the raw material and domestic demand and supply.

But the Mines Ministry’s initiative has failed to gain traction amongst its counterparts in the Steel Ministry, while the mining industry too remains split over the pros and cons of such an indexed pricing for iron-ore.

The Mines Ministry started propounding the need for a benchmark price early this year when the Steel Ministry lobbied for a price cap on domestic iron-ore.

Not only was this shot down in the face of opposition from the Mines Ministry and mine owners, even a mid-way compromise formula that fixed a price band for iron did not find any takers within the government or the mining industry.

The Mines Ministry, in its preliminary interaction with stakeholders, maintains that Indian benchmark prices are in place for several commodities like crude oil and bullion and the same could be replicated in case of iron-ore.

It contents that the present system could be tweaked to evolve a benchmark price. Currently, the Indian Bureau of Mines (IBM) collates the price of iron-ore from various provinces and pegs the royalty payable by mine owners every month. It is argued that this monthly price of IBM could be factored in with the monthly average international price of iron-ore to determine the suggested benchmark price, government officials have said.

However, a section of mine owners in their representations on the issue have said that the concept of a benchmark price itself would not be in line with the allocation of iron-ore assets through the auction route, as well as with the auction of iron-ore as is practised in several provinces.

The miners owners have pointed out that having secured iron-ore leases through competitive bidding, the government could not set a bar on prices, which would limit the rate of returns on capital invested in securing the mining rights.