CS Verma, Chairman of SAIL and NMDC said iron ore pricing is dynamic in nature and the pricing policy is governed by the board taking into consideration the prevailing market condition, market prices and the demand/supply position.
A report tabled by the Comptroller and Auditor General (CAG) suggests, iron ore miner National Mineral Development Corporation (NMDC) has suffered revenue loss of Rs 745.94 crore during 2007-10 for not revising the domestic prices of the steel-making raw material in accordance with the prevailing market rates.
CS Verma, Chairman of SAIL and NMDC said iron ore pricing is dynamic in nature and the pricing policy is governed by the board taking into consideration the prevailing market condition, market prices and the demand/supply position. In the last three months, iron ore pricing is being decided on a monthly basis and in order to streamline the process, a consultant has also been appointed, he added. As far as the CAG's findings on NMDC's losses are concerned, Verma did not wish to comment.
Verma further stated that global steel output has gone up by 0.7 percent and he expects India's steel demand to rise going forward. Besides, SAIL plants at the moment are running at over 100 percent capacity utilisation, he informed.
Here is the edited transcript of the interview on CNBC-TV18.
Q: Give us a word on the observations made yesterday by the Comptroller and Auditor General (CAG) about the kind of losses that National Mineral Development Corporation (NMDC) has suffered between the period of 2007 and 2010 in terms of not being able to hike prices as you should have, what is your response to that?
A: The report of the CAG has been read in the parliament and we will now see it in due course of time. The pricing policy of iron ore is decided by the board. The board takes into account all the factors such as the prevailing market condition, prevailing market prices, the international prices, demand/supply position and accordingly the price is decided. We will take a view in due course of time.
Q: Some of the discounts that you have handed out in the past to the steel industry etc. have been called unjust by the CAG. Do you think there is a case for rolling back some of these discounts and looking to raise your product prices at NMDC?
A: The CAG report has been read in the parliament so I would not like to comment on the pricing which have been done in the past. Pricing is a dynamic mechanism. We keep on changing the pricing policies also with the passage of time depending upon the market conditions. Earlier, we were following the netback system of pricing in iron ore.
When the export duty on iron ore increased from 20 percent to 30 percent, the netback system of iron ore pricing became infructuous. Then we resorted to quarterly pricing of iron ore. Since the market conditions became very volatile in the iron ore pricing market, we resorted to a monthly pricing mechanism.
In the last three months, we have been deciding the pricing of iron ore on a monthly basis. To streamline our pricing process, we have appointed a renowned consultant to study the various dynamics affecting the pricing and suggest a suitable formula for the pricing. The report of the consultant whom we have appointed is in the offing.
Q: Given the current conditions though, in terms of iron ore availability, is it possible that you have raised prices in January?
A: Today in India, the iron ore production is somewhere around 170 to 180 million tonne. The requirement of iron ore in India is roughly around 120 to 125 million tonne given the steel production because iron ore is used only for making steel. The remaining is getting exported.
Earlier also, we have seen the level of iron ore production in India to the level of about 225 million tonne and because of the various restrictions which have been imposed in the Karnataka region now, the iron ore production is hovering around 170 to 180 million tonne but the requirement of iron ore in India is somewhere around 125 to 130 million tonne.
The iron ore pricing will depend upon the market conditions, will depend upon the demand and supply, it will also be partially influenced by the iron ore pricing level prevailing in the international markets. We have seen a very high degree of volatility in iron ore pricing over the last one year. We have seen the peak level of iron ore price level in the overseas markets at about USD 190 per tonne cost and freight (CFR) China 62 percent Fe content and we have seen the lowest levels two months back, when it ranged about USD 90 per tonne also. Today, it is hovering around USD 125 per tonne.
Q: What is the situation at Steel Authority of India Ltd (SAIL) right now in terms of domestic steel demand and the kind of global steel prices that you are witnessing?
A: The data for the first ten months of the current calendar year 2012 have been released and globally the steel output has gone up by 0.7 percent. In India for the first ten months, it has gone up by 3.8 percent. At 5 times the growth in related terms in India, it is more than the global steel growth, in terms of percentages.
The growth in India for the first ten months is 3.8 percent against the growth in China, for the first ten months, which is at 2.1 percent. India is ultimately the demand centre. In India, the per capita consumption of steel is 55 kilogram (kg) per capita per annum against the global average of 200 kilogram per capita per annum.
I have not seen any steel company in India curtailing or deferring the capital investment in the enhancement or modernisation of steel capacity in India. Even our steel plants in SAIL have been running at more than 100 percent capacity utilization. Our capacity utilization at the steel plant in SAIL in the January to October period is about 106 percent.
In India, the demand of steel will go up. Now the government of India is finalising the infrastructure outlay in 12th five year plan at USD 1 trillion which is 10 percent of GDP, which is something that never happened in the past. This will only boost the steel demand.
As far as the price level is concerned, because India cannot remain insulated from the happenings in Europe and the other parts of the world, price levels have come down. If you compare the price level from the levels of April 2012 i.e. the beginning of the current financial year, prices have come down to about 10 percent.
In the last one month we have seen that prices have firmed up by about 2 to 3 percent globally, if you see that there are two representative products, hot-rolled (HR) coil for the flat products and Thermo Mechanically Treated (TMT) bar for the long segment. The HR prices in India at the beginning of the financial year was somewhere around Rs 38,000 per tonne. They fell to about Rs 35,000 per tonne but, now in the last one month they have slightly gone up and it is hovering around Rs 35,500 per tonne.
In TMT, which represents the long segment, the price level was about Rs 47,000 per tonne at the beginning of the financial year. It fell to a level of about Rs 42,000 per tonne and now it is hovering around Rs 42,500 per tonne.