NMDC's iron ore price hurting steel industry: Kalyani Steel

In an interview to CNBC-TV18, RK Goyal, managing director, Kalyani Steel explains how the steel industry is suffering due to the lack of iron ore. He says a catch-22 situation exists in the industry. He says, "As National Mineral Development Corporation (NMDC) is not reducing the price of iron, the industry is not able to buy at those prices and hence the industry is suffering."

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Below is the edited transcript of Goyal's interview to CNBC-TV18. Q: There was an e-auction which took place on Friday. Give us the details of the e-auctions. What were the prices and what is the kind of demand that you have seen?
A: In the last couple of auctions, most of the material was having Fe (Iron) content less than 60 percent. We do not have a beneficiation plant, therefore, we are not able to use majority of the ore. At the same time, the material having little higher Fe content was still priced much higher.
The price levels are still very high as compared to the international price, partly because NMDC has increased the base prices for material which has more than 60 percent Fe content and the requirement is much larger. The industry is really starving and at the same time, at the current level of prices the business is not viable. This is because imported steel is much cheaper. So, we have no choice, but to reduce our capacities further rather than buying the iron ore at NMDC prices and make much larger losses. Q: While you have not bid in the NMDC auction, did the other steelmakers bid at the current levels? Or have they also chosen to see the way you see, that the prices are still very high compared to international prices?
A: Our understanding is limited to calibrated ore and we see that not much of that ore is purchased by the industry.
_PAGEBREAK_ Q: What is really the demand-supply mismatch at this point in time? How much do you all require per month? How much is NMDC giving on its own through the few small suppliers? Supreme Court has allowed some category A mines to be restarted. They are Praveen Chandra mines as well as B Kumar Gowda mines in Bellary. So what might be the supply-demand situation a quarter down the line?
A: The total demand in Karnataka is more than 2.5 million tonnes per month. NMDC’s production is around 0.7 million tonnes per month. There is a big gap in the demand as well as the supply and there is no way it can be met today except by opening of the mines who have got all the approvals and for which the R&R plan is completed. Q: When does the increase come?
A: Two mines have opened a week ago. To that extent, more material will start coming, but we do not see more than 4 million tonnes additional material coming up by end of another 12 months. Q: What will all this do to your financial performance? You have been impacted by all these developments. What can we expect in H2 with respect to Kalyani Steel?
A: We are operating at almost 35-40 percent capacity utilisation. We are working very hard to find a way to break-even. We do not see much better performance in H2.

Q: What is your sense about iron ore prices itself? Do you see it falling further?
A: Yes. We don’t see a very positive response to the consumption of steel all over the world. Situation in China is also not very encouraging. As the capacity utilisation all over the world will not be very high hence, the sentiment will be down and it will have a negative impact further on India. Many of these companies in China, Korea may dump the material in India. Q: By your current arithmetic the demand-supply gap is 20 million tonnes a year for Karnataka?
A: Yes, iron ore demand-supply gap at the current level is more than 20 million tonnes.

Q: You see it improving to just maybe 16 million tonnes in the next 12 months?
A: Yes, that is right.
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Q: Are you getting a sense from the industry whether prices are likely to come down in the domestic market in the auctions?
A: That is a catch-22 situation. Based on our discussions with various people NMDC is not reducing the price. At the same time, they have stopped production in one of the mines basically because they do not have place to stock the material. They should correct the price and sell the material. So if NMDC is not able to reduce the price or if they are not reducing the price, the industry is not able to buy at those prices and hence the industry is suffering because iron ore is not available at the right price and NMDC is closing their mines.
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