Indian steel industry reeling under high cost, shortage of iron ore

The Indian steel industry is currently facing testing times as the iron ore supply has been badly squeezed and at the same time, the prices of iron ore have shown an unprecedented rise in both national and international markets. Iron ore, a basic raw material for making steel, has limited supply and its raising prices, has resulted in high steel prices.

The adjustment of prices can primarily be attributed to the sharp rise in the main raw material cost which is iron ore and its overall shortage besides surging global steel prices.

The State-run NMDC, for instance, has increased prices of iron ore lumps (0-10 mm Fe 64 from Rs 1,960 (as on June 15, 2020) to Rs 4,610 per ton (as on December 22, 2020) in the last six months. The increase is 135 per cent. Each 1000 rupees increase in iron ore prices impacts minimum Rs 2,000 per ton in steel making.

This has to be seen in the wake of the fact that global steel prices fell sharply to below $400 per tonne and the domestic prices followed suit, While rest of the World has been reeling under the pressure of Covid induced disruptions, the large $550 billion stimulus by Chinese government revived its economy much faster and to meet their domestic steel demand china imported more steel (180 per cent growth) and exported less steel (18 per cent lower). The steel exporting countries like Japan, South Korea curtailed their production and overall supplies of steel in the international markets came down thus causing shortages. The only comparative advantage Indian steel industry has over its global peers is availability of local iron ore. Unfortunately, the acute shortage of iron ore aggravated the problems of Indian steel industry further affecting the steel production. The secondary steel players suffered the most as their capacity utilisation is much lower than primary producers.

A China-induced spike in iron ore prices on the one hand and domestic shortages on the other have badly disrupted the steel sector. Bearing the brunt of the current situation, are the smaller steel producers, who are faced with the double whammy of high input prices and non-availability of iron ore. As a result, they are unable to scale up production and stocks in smaller plants are less than 15 days of requirement.

It is therefore understandable that the body of Indian steel players is seeking urgent intervention of the government so that they can remain competitive in the market. Move like a temporary ban of iron ore export for a 6-month period till the situation stabilises, for instance, is the need of the hour, which in turn is expected to help the domestic steel industry by increasing the availability of iron ore in the country.

Steel industry also wants implementation of quick policy measures for easing the supply of iron ore situation, especially in Odisha, where the state government miners, like OMC and IDCOL may be directed to prioritise supply to domestic end users over exporters by limiting the daily tonnage to exporters and diverting the major quantity to domestic steel manufacturers. If OMC, OMDC and IDCOL are directed to restrict its E-auction of iron ore only for end users in India either for pellets or steel manufacture, that would also come in handy for the sector. It's an acid test for the Centre how it handles the situation.