In an interview with ET Now,Mr CS Verma CMD of NMDC,shares his business outlook and talks about the iron ore price cut.
Q-There is a surprise move because the street was probably expecting a rise in prices.Why this 6%cut?
A-We take a view and assessment of the demand and supply position in the market.We see what is happening in the international market and then we make our own assessment.We are having a board level committee which goes on the data and they recommend a price level on a monthly basis to the board.Yesterday we had our board meeting and our assessment was that there is no point in either curtailing or increasing the price of the iron ore fine.There has to be a proper gap between iron ore fine and lump price and that gap has to be maintained.So then we took a view depending upon the assessment made by us and on the recommendation of the committee that we had to reduce the prices by about INR 320 per tonne,which is roughly about 5.9%.So now our iron ore lump prices for the current month is INR 5060 per tonne and iron ore fine prices remain the same as of last month,ie.INR 2610 per tonne.
Q-Is there a bit of lag in understanding as to how the prices will move on the part of the layman compared to what NMDC does?
A-We fully understand the international scenario and the domestic scenario,but the international pricing of the iron ore and the domestic pricing of the iron ore are two different things.Today India is producing about 170 million tonne to 180 million tonne of iron ore.The demand of iron ore in India is about 120 million tonne to 125 million tonne,but India has to export iron ore.The government has been discouraging it because we have to export the valuated products,not the mineral ore.So export duty is 30%,even railway freight is more than double when it is meant for the export of the iron ore.We have to see keeping in view all these things than what is going to be the domestic price,domestic demand and then see that international price level will only have the trend.But the domestic iron ore prices will not go in the same direction or in the same proportion as the international iron ore prices because the price fixation in the two segments is totally different.
Q-What is the kind of call that you are taking on prices?Are you going to be hiking prices or cutting them?
A-Earlier we were fixing prices on netback system.When the export duty on iron ore increased some 20%to 30%,netback system became infectious.Then we shifted to quarterly pricing system,but again we saw a high degree of volatility in the iron ore prices in the market.So we shifted to monthly prices and now that we are having a monthly price regiment,the price level which had been decided by us yesterday is for the month of January.We consulted KPMG to suggest us professional price mechanism for the pricing of the sales of iron ore.Their report is expected sometime end of this month and then recommendations of the consultants will be considered by the board and then we will take a view about the pricing.As far as the price level is concerned,that all depends on demand and supply.I am not expecting very significant increase or decrease in the iron ore prices.
