State-owned iron ore producer NMDC Ltd hiked prices by 2-5% from Tuesday. The latest price hike is very much on expected lines, given that the current March quarter is seasonally strong.
Besides, global iron ore prices are also improving, which has a positive impact on domestic prices. Global (Australia) iron ore prices are up nearly 4% month-on-month so far in March, analysts at Nomura Financial Advisory & Securities (India) said in a report dated March 20.
Also, NMDC has increased iron ore prices four times since the government removed/reduced export duty on iron ore in mid-November. NMDC’s lump ore and fines price now 4,500 more 4,110 per tonne, which is 18% and 57% higher, respectively, than the levels seen in mid-November.
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Thus, the March quarter (Q4FY23) performance is set to be better sequentially, with NMDC’s sales volumes in January and February ahead of the average volumes seen in the third quarter. This, along with the increase in prices, would mean better sales realisation, which was a pain point in the previous quarter. In Q3, this parameter was down about 35% year-on-year (yoy) and 2% sequentially.
While the price hike bodes well, the company’s stock has hardly budged since the latest announcement on the price hike. This suggests that investors are waiting for a meaningful increase in volumes. NMDC’s iron ore sales volume declined by 8.6% to 33.4 million tonnes in the eleven months ended February.
Iron ore is a major raw material for steel making and the demand for this metal has not yet increased substantially.
“We note that NMDC’s iron ore import parity at higher than historical discounts is mainly due to weaker volume offtake,” analysts at Kotak Institutional Equities said in a report on March 21. 2% but the impact on earnings will be offset by higher prices.
Against this backdrop, NMDC shares are down 9% so far in 2023. The company’s ability to meet its production volume target of 50 million tonnes in FY24 remains to be seen. Apart from volume growth, meaningful price increases will also impact investor sentiment, but analysts do not see much scope for significant upside given the sluggish demand environment. However, the outlook may improve with better-than-expected earnings performance in the near term.
Besides, if steel demand improves meaningfully with the opening up of the Chinese economy, it will help sentiment. It is monitorable.
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