The Odisha state government in India has completed its auction of 19 failing iron and manganese ore blocks, which were set to expire at the end of the month.
Of the winning bids, the highest premium stood at around 154pc for the Siljora-Kalimati mine, which was won by Debabrata Behera. The composite mines have estimated reserves of 720,000mt of iron ore and 3.846mn mt of manganese.
JSW Steel, which won rights to four iron ore mines— Nuagaon, Ganua, Narayanposhi, and Jajang—bid aggressively and paid premiums as high as 130pc. The total estimated iron ore reserves for the first three mines are approximately 1.1bn mt, while the fourth is estimated to contain 39.4mn mt.
ArcelorMittal won the Thakurani block in Odisha, paying a 107.55pc premium. It has an estimated reserve of about 179mn mt.
Goa-based Fomento Resources bagged Nadidihi iron ore mine, which has estimated resevres of about 20.48mn mt, after paying steep premium of 141.25pc.
Impact on Pricing
As large steel players and merchant miners bid aggressively and paid high premiums to secure iron ore, input cost for steel will either rise or remain in line with the global market.
It is believed that merchant miners that above 100pc are unlikely to make profits in immediate future and will pass the partial premium to the sponge iron manufacturers, which would also impact pricing. Direct reduced iron (DRI) or sponge iron are major raw materials for electric furnaces and induction furnaces. If the price of sponge moves up, companies are bound to pass the cost onto end-users.
Indian iron ore prices are governed by international prices, while international iron ore prices are largely determined by big miners, like Rio Tinto, BHP, Vale, and others. Therefore, domestic iron prices may not rise beyond international prices.
Securing iron ore blocks at high premium for integrated plants or large steel players are paramount and long-term gains for anybody with capacity in excess of 10mn mt. The additional cost incurred will be absorbed in through finished steel products.