State-owned iron ore miner NMDC may be forced to cut the iron ore prices in auction going ahead on account of low response from steelmakers, R K Goyal, managing Director, Kalyani Steels told CNBC-TV18.
He explained that although NMDC has recently brought down prices by 10-12 percent they are still very high for steel manufactures who are already reeling under several other costs like imported coking coal and high electricity charges.
Post Supreme Court ban on iron ore mining in Karnataka in August 2011, ore has been sold through government appointed e-auction committee. Today, there will be another round auction for iron ore, which Goyal feels will remain lackluster.
"I do not expect a great interest again. Maybe, most of the fines maybe sold which is just 1/3rd of the total material. Lumps and ROMs may not be sold that much,” he said. Around 4.5 lakh tonne of ore will be auctioned today.
Goyal said that if the prices are brought down further by 15-20 percent, then Kalyani Steels would be much comfortable to buy more material. He expects the Q4 earnings to be better than Q3 as steel demand is generally high during January-March.
Below is the verbatim transcript of the interview
Q: Could you give us your expectations of how the Karnataka e-auction of iron ore might play out today. How is the interest likely to be and even the pricing?
A: Karnataka e-auction is happening quite frequently. Even today, almost 4.5 lakh tonne material will be auctioned. In spite of prices being brought down by NMDC by almost 10-12 percent, the prices are still very high at which manufacturing steel is not profitable. Therefore, I do not expect a great interest again. Maybe, most of the fines maybe sold which is just 1/3rd of the total material. Lumps and ROMs may not be sold that much.
Q: How do the prices compare with the landed price of iron ore?
A: In our factory around 62-63 percent of material is fines and its landed price would be close to Rs 4,000; for lump ore, it maybe Rs 6,000.
Q: What about for the company per se? Are you all going to be bidding or will you all sit out? You said despite NMDC reducing the prices, they are still very high. So, how much lower will you be comfortable bidding at?
A: We will be comfortable, if the prices are brought down around 15-20 percent. That price can become competitive and we would like to buy much more material.
Q: So in this auction, will you all be participating?
A: We will participate if some lot is attractive. If something is good then we may buy one or two lots but we may not buy more material.
Q: NMDC’s price is much higher than the imported price?
A: NMDC prices today are not very high as compared to the international price. But then in India you have to buy iron ore at international price. Coking coal or coke has to be imported. Energy costs including electricity are very high, poor infrastructure etc are the other issues, keeping this in mind there is no point in producing steel in India. The only advantage of manufacturing steel in India is that iron ore is available locally, which must be available at the local price.
Q: You don’t have a labour advantage?
A: We really do not have much labour advantage because highly skilled labour is also very expensive in India. The labour productivity is much lower and the level of automation which is there in the new plants globally, you require very few people.
Q: Since you say that despite the reductions from NMDC, prices are still on the higher side. In your conversation, do you think that NMDC is likely to further cut prices?
A: I think in times to come, they may have to reduce the price because most of the ore which is coming in, e-auction is remaining unsold.
Q: When is the next Supreme Court hearing on the Karnataka mining ban?
A: I think the next hearing is on April 15 where we are expecting a judgement.
Q: You would hope that we are going to see restart of mining in Karnataka probably before the year is out? What is the kind of deadline you are looking at?
A: Supreme Court has already given us the roadmap for opening of A and B category mines. Now, the implementation of that roadmap is taking lot of time because several approvals are required. Reclamation and rehabilitation (R&R) plan is to be implemented. Once that is done, the bunch will be opened and that much ore will start coming in. But then the total quantum of ore which will be available will be very low. Like from A category, B category and NMDC - all put together may not be more than 20-22 million tonne. This may take almost two years. The next decision which we are expecting from Supreme Court is in relation to C category mines.
Q: What do you think you will do in terms of Q4 revenues?
A: As far as Q4 revenue is concerned, we are yet to come out with our final number. It is premature for us to make any comments on that. But I think it should be better than what it was in Q3.