NMDC expects rise in iron ore prices over the long term

NMDC officials expect a rise in iron ore prices in 2010-11. Chinese inventories which are piling up will not be a concern, claim company executives

Company officials from state-run National Mineral Development Corp (NMDC) expect long-term global and domestic iron ore prices to rise in 2010-2011. While the company admits that Chinese inventories are piling up, it claims that this will not affect the iron ore business in India.

“Overall, we are expecting a rise in prices. Long-term prices are based on spot prices. Spot prices are currently high. Globally, there is a general understanding that there will be a jump in the long-term prices during FY11,” said Rana Som, chairman and managing director, NMDC.

On being asked to put a figure on the expected rise in iron ore prices, Mr Som said, “What would be the rise is anybody’s guess; some predict it could be 30% or 40%”. He also added that this rise in global iron ore prices will surely reflect on the long-term domestic prices.

Interestingly, NMDC officials do not expect the large amount of Chinese inventories to be a serious concern. “Chinese inventories are piling up, but China is also quite ambitious in its steel production plans. They are trying to go beyond 800 million tonnes (MT) and their appetite for iron ore is insatiable. India has been exporting just about 100MT to China and that will continue,” said Mr Som.

Most of the long-term contacts that NMDC has inked with its clients will end by March 2010 and the company expects positive price realisation in the new contracts that will be signed.

NMDC—which has announced its follow-on public offer (FPO)—is planning to increase its iron ore capacity to 50MT by 2015. The company’s total iron ore production during FY09 was 28.52MT. In line with its planned expansion plan, the company plans to acquire four mines in the next financial year. Two of these mines would be in Jharkhand, one in Karnataka and one in Chhattisgarh, which would be the captive mine for the company’s steel plant.

NMDC also plans to diversify into other minerals—coal and phosphate are under consideration. The entity, in collaboration with Coal India Ltd (CIL), plans to jointly acquire coal assets both in domestic and global destinations.
 

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