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Iron ore prices unlikely to come down in India

Amit Dixit, Lead Analyst- Metals, Logistics and Defence, ICICI Securities, says while global iron ore prices have cooled off, in India, we still do not see NMDC taking a price cut and export prices are still at a premium, the landed cost of imports, is still at a premium. If the steel prices are under pressure, iron ore prices can also be under pressure potentially. NMDC could carry out some marginal cuts in April, but it could be very marginal, unlike the rest of the world.

How are you looking at the overall steel prices? Do you think now there is a strong case for a decline in prices, given the fall that we have seen in iron ore prices?
Amit Dixit: If you look at it from the Indian perspective, steel prices were declining through this quarter, something which is very unseasonal because this is a seasonally strong quarter. Having said that, we were having a very peculiar case where spreads were contracting because on one hand, steel prices were declining and on the other, iron ore prices remained firm. Now, while global iron ore prices have cooled off, in India, we still do not see NMDC taking a price cut and export prices are still at a premium, the landed cost of imports, that is, they are still at a premium.

So, if the steel prices are under pressure, you could see that iron ore prices can also be under pressure potentially. Having said that, we will have to see what NMDC decides to do in the month of April. Although in Odisha, we have heard of instances where discounts have been offered on iron ore. Therefore, we could actually see some marginal cuts in April, but it could be very marginal, unlike the rest of the world.

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What about steel stocks? They have been on the rise of late. What is the outlook on how you are looking at this rally sustaining down the line for the long haul?
Amit Dixit: Yesterday, all the steel stocks rose because of the positive news from China that the industrial data and the various manufacturing-related data came ahead of expectations. Now, this is not very uncommon in China. After Chinese New Year, you see that data points are typically quite sanguine and this year is no different.

Having said that, April to June is the peak construction activity in China where demand is quite good and therefore seasonal uptick in demand might see some rebound in the steel stocks everywhere, not just in India.

So, steel stocks that had been languishing for a while because of global iron ore prices correcting and the uncertainty around China, suddenly found a shot in the arm yesterday. Now, this rally can only sustain if we see the sustainable increase in the industrial production, in the industrial activity in China. That is something that one needs to be watchful of. There have been stimulus measures in the past, but personally speaking, I am not too bullish on those stimulus measures at least in China because we have seen them fading out very soon.

Where is the China factor for metals because steel is a function of China and China is a function of demand? We do not know where China is headed and barring a swing move from China, can things really move for the metal sector?
Amit Dixit: No, if you are talking about the metal sector in India, particularly steel, what we have seen in the recent times is that for the last one, one-and-a-half years, post Covid to be more precise, steel has become a very local industry. In India, if you look at it, the demand is growing and we have seen that for the first time, I am seeing that we are going to see three years of double-digit growth if you include FY24. Therefore, the consumption in India is on the rise.

We have our own players who are increasing capacity and consumption will be on rise because in India we expect that consumption will double from FY23 levels by FY32. Essentially, we are talking about a growth of roughly 7.5-8% for many years to come. I am quite bullish on steel space in India. Now, see, nothing worse could have happened as far as China is concerned.

In January, in December, particularly in the Q3 of this year, we saw Chinese imports hitting Indian shores and India turned net importer of steel in November and December. But all this changed actually if you look at it in January and February when we started exporting and we turned net exporters once again. I believe in India, the overall sentiments are quite bullish. While spreads will not be as high as they were in the past, because of the volume growth, we would see steel companies doing well.

How are you looking at NMDC in particular given the fact that we have seen the fine prices at a significant premium to the export parity. Is there some sort of a sharp cut on the cards?
Amit Dixit: No, even NMDC’s prices as of now are at a discount. In fact, if you look at landed price, landed cost of imports, earlier NMDC prices were at a discount of 50%, now they are at a discount of roughly 30% compared to landed cost of imports. So, the discount factor is still there and therefore, I do not really see NMDC cutting prices because globally prices have corrected. In India, technically speaking, when imports of iron ore are there, then you will see that prices fluctuate according to whatever is happening around the world.

However, what we are seeing is that in the domestic market, there is a slight surplus of iron ore, particularly in Odisha. In Odisha, we have seen people cutting prices and that would play a major role. Also, what would play a major role is that in China, export pellet prices have corrected. So, basically, this pellet DRI chain is finding some price crunch and that would flow into NMDC prices rather than something happening in the rest of the world because India, as I have been mentioning, is very often the only country in the world that both produces and consumes iron ore. Our supply chain is very internal rather than being external.

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