NMDC has cut its iron ore prices. This is the third cut in rates since the government took export duty On all grades of iron ore. Effective July 12, NMDC’s one-time ore and penalty prices are 3,900 per tonne and 2,810 per tonne respectively. These are around 36% and 45.5% below the levels seen at the end of April, i.e. before the government raised export duties.
Investors are clearly unhappy. On Tuesday, shares of the state-owned miner fell more than 5% in opening deals on the National Stock Exchange, dragging the stock near its 52-week low. 101.55 Viewed June 20.
Hence, given the fall in global iron ore prices, analysts expect domestic prices to remain under pressure. “Global (Australia) iron ore prices have declined 12% to $109 a tonne in July-22 from $123 a tonne in June-22. Local iron ore prices Imported ore prices continue to be significantly discounted (we note that local ore is lower with higher alumina content), analysts at Nomura Financial Advisory and Securities (India) said in a report on July 11.
Weak demand environment is adding to the crisis. NMDC’s sales volume declined 20% year-on-year to 7.7 million tonnes in the June quarter (Q1FY23), despite a cut in prices in May-June. Construction activities slow down during the monsoon season, affecting steel demand. Note that iron ore is a major raw material used in the production of steel.
“India is an oversupply market for iron ore, exports account for about 10% of production, and export duties have made exports impractical. We note that the market surplus is likely to worsen in FY2023E due to lower exports and pick-up in volumes from captive mines,” said analysts at Kotak Institutional Equities in a report dated July 11.
Against this backdrop, the brokerage has cut NMDC’s volume estimates by 3%/2%/2% and now forecasts volumes of 41/43/44 million tonnes respectively in FY2023/24/25E. In FY22, sales stood at 40.7 million tonnes.
Also, Kotak has cut the Ebitda estimate for FY23/24/25E by 7%/7%/8%. Ebitda is short for earnings before interest, taxes, depreciation and amortization.
Shares of NMDC have lost nearly 38 per cent in the past one year, while the sectoral Nifty Metal index has fallen at a much slower pace of 8.4%.