NMDC Is Exporting It to Japan at a Much Lower Price Than What Domestic Steel Industry Pays

Of late, there are allegations that the nation's largest iron ore producer, government owned NMDC, is exporting it to Japan at a much lower price than what the domestic steel industry pays.

Also, with Mr CS Verma being the chairman of both SAIL, the country's largest steel maker and NMDC, there are charges of conflict of interest. He tells Prashanth Chintala these contentions are incorrect.

Edited excerpts:

Q - Sponge iron manufacturers complain that NMDC is subsidizing the Japanese steel industry at the expense of the domestic one. Is there a basis? If not, why such allegations?

A - NMDC is exporting ore to Japan and South Korea through MMTC, canalizing agency of the Government of India for this, based on specific approval from the Union cabinet. As such, NMDC is following a policy decision of the government.

The issue raised by sponge iron manufacturers, that NMDC is subsidizing Japanese steel mills is not correct. The export sales taking place on the FOB Vizag port basis and export realization at Vizag is much higher than the landed cost of NMDC ore at Vizag.

One reason for such an issue being raised by sponge iron manufacturers could be the difference between actual realizations to NMDC from export vis à vis domestic prices of NMDC at the mines, which happen to be lower in respect of export.

However, this lower realization from export to NMDC is mainly on account of (a) 30% export duty on iron ore export levied by the GoI and (b) differential railway freight of about INR 1,500 a tonne between export and domestic movement of iron ore. These amounts are accruing to GoI or the railways.

Q - In some of NMDC's recent auctions, there were no takers for most of the iron ore lumps offered. Why?

A - It is not correct to say that there were no takers in the e-auctions. During the last one, on November 20th, in respect of the Doni lump, more than 50% of the offered quantity was sold.

Besides, the entire fine ore being offered is being lifted. The response in any e-auction depends on demand and supply at that point in time and no generalized inference should be drawn from any specific e-auction

Q - Is NMDC thinking of further revising its ore prices?

A - Pricing decision are being taken by our board from time to time. It will deliberate and take a final decision in this regard at the appropriate time.

Q - By being the chairman and managing director of both SAIL and NMDC, don't you think there is a conflict of interest?

A - There is none. SAIL has got captive iron ore mines for meeting its requirement and is not dependent on NMDC's iron ore. In fact, SAIL has never procured any ore from NMDC.

Additionally, NMDC is in the process of setting up a 3 million tonne steel plant at Nagarnar, Chhattisgarh, and other value-added units like a pellet plant and benefication plant. The huge expertise of SAIL for setting up such value-added plants would be helpful to NMDC.

Q - With both SAIL and NMDC being large public sector units, is it not difficult for one person to closely monitor them?

A - I don't think it is difficult to closely monitor the two PSUs. Both are well run and professionally managed companies and under the same administrative ministry of the GoI.

Of late, there are allegations that the nation's largest iron ore producer, government owned NMDC, is exporting it to Japan at a much lower price than what the domestic steel industry pays.

Also, with Mr CS Verma being the chairman of both SAIL, the country's largest steel maker and NMDC, there are charges of conflict of interest. He tells Prashanth Chintala these contentions are incorrect.

Edited excerpts:

Q - Sponge iron manufacturers complain that NMDC is subsidizing the Japanese steel industry at the expense of the domestic one. Is there a basis? If not, why such allegations?

A - NMDC is exporting ore to Japan and South Korea through MMTC, canalizing agency of the Government of India for this, based on specific approval from the Union cabinet. As such, NMDC is following a policy decision of the government.

The issue raised by sponge iron manufacturers, that NMDC is subsidizing Japanese steel mills is not correct. The export sales taking place on the FOB Vizag port basis and export realization at Vizag is much higher than the landed cost of NMDC ore at Vizag.

One reason for such an issue being raised by sponge iron manufacturers could be the difference between actual realizations to NMDC from export vis à vis domestic prices of NMDC at the mines, which happen to be lower in respect of export.

However, this lower realization from export to NMDC is mainly on account of (a) 30% export duty on iron ore export levied by the GoI and (b) differential railway freight of about INR 1,500 a tonne between export and domestic movement of iron ore. These amounts are accruing to GoI or the railways.

Q - In some of NMDC's recent auctions, there were no takers for most of the iron ore lumps offered. Why?

A - It is not correct to say that there were no takers in the e-auctions. During the last one, on November 20th, in respect of the Doni lump, more than 50% of the offered quantity was sold.

Besides, the entire fine ore being offered is being lifted. The response in any e-auction depends on demand and supply at that point in time and no generalized inference should be drawn from any specific e-auction

Q - Is NMDC thinking of further revising its ore prices?

A - Pricing decision are being taken by our board from time to time. It will deliberate and take a final decision in this regard at the appropriate time.

Q - By being the chairman and managing director of both SAIL and NMDC, don't you think there is a conflict of interest?

A - There is none. SAIL has got captive iron ore mines for meeting its requirement and is not dependent on NMDC's iron ore. In fact, SAIL has never procured any ore from NMDC.

Additionally, NMDC is in the process of setting up a 3 million tonne steel plant at Nagarnar, Chhattisgarh, and other value-added units like a pellet plant and benefication plant. The huge expertise of SAIL for setting up such value-added plants would be helpful to NMDC.

Q - With both SAIL and NMDC being large public sector units, is it not difficult for one person to closely monitor them?

A - I don't think it is difficult to closely monitor the two PSUs. Both are well run and professionally managed companies and under the same administrative ministry of the GoI.