Iron ore auctions are set to raise the cost of mining in eastern India, with premiums ranging between 90% and 135% for the seven mines bid for in Odisha till date. This is likely to erode margins of non-integrated steel players who do not have captive ore, said a new report by ICICI Securities. However, it said, JSW Steel, which has been more aggressive in the auctions than the likes of Tata Steel and Arcelor-Mittal and has bagged four mines, is expected to be better off after the upcoming auction. It also said that the difference between domestic and imported ore prices will come down after the auction. “JSW Steel has decided to secure major part of their existing steel portfolio with Odisha ore and thereby inadvertently add to the existing cost structure. But, still given the scenario that we see unfolding, JSW Steel will be better off compared to an unintegrated steel player in India,” said the report. JSW Steel has won Nuagaon, Narayanposhi, Ganua and Jajang mines. “We have participated in the Odisha iron ore auctions to ensure raw material supplies. However, we would not like to make any comment at this stage, since we are yet to receive any official communication from the authorities,” a JSW Steel spokesperson told ET. Tata Steel, Steel Authority of India Limited and JSPL have not been bidding aggressively. Even Arcelor Mittal has been relatively measured. While both the state and the Centre have been proactive in changing the norms of the auction whenever necessary, the last roadblocks need to be cleared, according to ICICI Securities. “Yet, we see the distinct possibility of Odisha ceasing to transmit deflation within states, post the auction. The environment we see playing out will reduce the margin profile of the unintegrated steel players and will be beneficial for merchant miners of the other states,” said the report. According to ICICI Securities, merchant miners will co-exist with captive miners after the auction. Over a period of time, as auctions take shape, there will be more localised consumption of Odisha (merchant) ore. As a result, Odisha merchant ore can no longer transmit deflation to other states such as Chhattisgarh, Karnataka and Maharashtra, it said. “We expect Indian iron ore prices to move up relative to import parity. This will narrow down the 40-50% discount between domestic and imported prices,” said the report.
Source : https://economictimes.indiatimes.com