NMDC has intimated customers of 34-56% increase in iron ore prices across various grades effective April 1st, with iron ore fines prices increased by 34% to Rs2600/MT. Prices for iron ore fines were earlier increased by 16% in Jan 10. As per our calculations, the effective price increase for iron ore fines from Dec-09 is Rs927/MT, 55%.
NMDC talked about a potential re-working of its annual contracts, possibly in favor of quarterly contracts. However there is no news flow on the same so far. The above 34% price increase is ‘provisional’ as per the media report, with a final price increase likely to be communicated later (but would be effective from April 1.
Based on $200/MT coking coal and the latest NMDC iron ore prices, the total cost push for a non integrated steel mill, dependent on NMDC for iron ore, works out to Rs4000/MT. However the actual cost push would be slightly higher, given that many of the non-integrated steel mills buy some spot iron ore, where the price inflation has been sharply higher.
We expect the Indian steel majors to report very strong March quarter earnings, given that the full impact of the cost push
would flow through in June quarter. TATA’s India operations remain best placed to benefit from steel price increases in the domestic market, given captive raw materials.