Iron ore is the most heavily-traded dry cargo globally. India participates both as an exporter and importer. It is only expected that prices in the world market will have its impact in India as well.
The fluctuations in iron ore prices In this decade alone have been astounding. Iron ore prices peaked at $187 a tonne in February 2011 and hit $41 a tonne in December 2015.
The steel industry, which regulates product prices based on input-cost fluctuations, has had to live with such fluctuation. Chinese steel-makers, with a commanding share of global steel production and accounting for over two-thirds of seaborne iron-ore supply, want an inquiry on speculation playing a role in the “abnormal rally” leading to doubling of prices of the raw materials in 2020.
Whatever the role of speculation money, iron ore, fetching an year-end price of $175 a tonne on the Dalian Commodity Exchange (DCE), is now the world’s best performing major commodity for the second year in a row.
In order to support the high level of steel production and ore stockholding as insurance against supply disruptions, Chinese imports of iron ore till November were up 10.9% over the corresponding period the year before. Incidentally, of India’s iron ore exports of 33.39 million tonnes between April and October, China was the destination for almost 90% of Indian iron ore.
And this has definitely affected steel industry’s fortunes as well. Between January and November last year, the world steel production was down 1.3% to 1.61 billion tonnes when China boosted output by an impressive 5.5%, to 961.16 million tonnes.
Even while India produced 3.5% more—9.245 million tonnes in November on a y-o-y basis—the total for the first 11 months of 2020 shows a fall of 12.3% to 89.4 million tonnes.
It was the Indian Steel Association (ISA), representing the interest of all major producers of the steel and its alloys, that drew the government’s attention. Steel producers, particularly those without ownership of mines, were facing because of the double whammy of a spurt in iron-ore exports and a fall in production, principally in the country’s largest and finest quality ore producing state, Odisha.
Soon, it became a chorus of protests against iron-ore exports with associations of sponge iron and steel-forgings manufacturers making common cause with ISA.
ISA has demanded a six-month ban on iron-ore exports, restriction of e-auction sale to steel and pellet makers. It has also urged state-owned mining companies to step up production. Pressure is building on Odisha over the surrender of three recently-auctioned mines and over others where the owners didn’t take the initiative to execute lease-deeds.
At the auctions, some steel companies and merchant-miners had quoted fancy premiums for mines whose leases expired in March 2020. Later, they realised that mining operations would not be sustainable if such high premiums are to be paid on the sale of extracted ore.
Tata Steel left ISA in May, allegedly over differences on contentious mining policy. Its global CEO and managing director TV Narendran had said then, “We certainly will never be bidders at these prices. We thought some bids were unreasonably high…”
Calls for government intervention to rein in prices have grown following MSME and highways minister Nitin Gadkari asking for discussions at the “highest level” to discover if the “55% hike in steel prices in the past six months is justified by rises in cost of raw materials, principally iron ore, labour and power.”
At the same time, steel minister Dharmendra Pradhan has offered reassurances that the government was not inclined to “regulate market forces that decide prices,” even while he favoured a ban on ore exports for a given period.
In the din of protests against spikes in ore-prices of iron ore, and therefore, of steel products, we seem to have lost the perspective. Iron ore and steel in the downstream are more integral to the global economy than most other commodities.
Will iron ore prices hold in the near term? Most analysts think prices will stay firm during the beginning of 2021. In anticipation of a vaccine-related economic recovery across the world, Chinese steel mills are unlikely to let up on building stocks of iron ore.
Thus, at the very least, allegations of cartelisation or profiteering need to be weighed against the dynamics of the industry and global economy.