NMDC’s export contracts with Japan and Korea come to a halt; co awaits for GoI to renew the agreement

State-owned NMDC’s long-term agreement (LTA) to supply high-grade iron ore to Japanese steel mills and the South Korean steelmaker Posco, which ended on March 31, has not been renewed by the Union commerce ministry for this financial year.

The reason, according to an NMDC executive, is the shortage and supply disruption of iron ore in India.

“We are awaiting government orders on renewing the contract. This could be temporary as there is a shortage of iron ore in India, and some mines auctioned in Odisha are yet to start production,” said the executive, who did not wish to be identified.

Steel research and analysis firm SteelMint reported on Thursday that the Centre has withdrawn the two sops it had provided NMDC in offering these LTAs – a reduced 10% export duty, as against the normal 30% paid by private iron ore exporters, and some railway freight concessions compared to the rate charged to private players.

Queries sent to Posco and Japanese steelmaker JFE Steel did not elicit a response till press time.

In April 2018, the Union cabinet chaired by Prime Minister Narendra Modi had approved the renewal of LTAs for the supply of iron ore (lumps and fines) of grade +64% Fe content to Japanese Steel Mills and Posco for another three years through state-owned trading company MMTC Limited.

As per the contract, NMDC was to supply Japanese steel mills with 3-4.3 million tonnes of iron ore per annum and Posco with 0.8-1.2 mt per annum.

NMDC produced about 34.1 mt of iron ore in 2020-2021 and exported about 2.292 mt, according to people aware of the matter.

“NMDC, being the biggest iron ore producer in India, has planned to produce around 42 mt for the upcoming year. While this contract would have helped the company achieve better margins, the prices and demand in the domestic markets are equally higher,” another person privy to the information said on condition of anonymity.

Analysts viewed this development positively for NMDC as the margins and demand in the domestic market are equally competitive. The company supplies about 10% of its production via this agreement. The move is least likely to impact the company financially.

“These LTAs with the present level of iron ore prices were profitable but generally these LTAs are not profitable for NMDC. Now that the contract isn’t there, they will sell the same ore and their margins will only improve,” said Amit Dixit, research analyst,

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Global steel prices have been high in the first four months of this year and producers were struggling to supply as there was a huge shortage of raw material, iron ore. As per data from the government officials, iron ore exports from India increased 66% to 22.42 mt in 2020-21.

Iron ore production in India fell almost 44 mt to 202 mt in 2020-21.

In June, NMDC fixed the lump ore prices at Rs 7,650 per tonne and fines at Rs 6,560 per tonne. Prices have jumped more than three times year-on-year, from Rs 2,250 per tonne for lump ore and Rs 1,960 per tonne for fines.