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Steel Industries Find No Solace in Policy Change

Change in long-term ore linkage policy is expected to fuel a further price rise

Published: 30th April 2015 06:03 AM  |   Last Updated: 30th April 2015 06:03 AM   |  A+A-

BHUBANESWAR: Even as steel companies grapple with exorbitant iron ore prices fixed by the Odisha Mining Corporation (OMC), the State Cabinet’s decision to provide ore linkage to ‘end-user’ plants has come as a rude shock for them.

The change in the policy is expected to fuel a further price rise and create more hurdles in getting iron ore, steel industry sources said on Wednesday.

By approving a modification to the long-term ore linkage policy of OMC, the Cabinet on Tuesday decided that the State-PSU would be allowed to provide 70 per cent of its iron ore production to end-user plants which include non-MoU companies and local industries. Earlier, half of the iron ore produced by OMC was earmarked for national e-auction while the other half was offered to MoU-signed companies in the State.

The latest decision is being seen as Government yielding to the lobby of sponge iron plants which faced problems in getting iron ore supply for its plants since the former was committed only to MoU-signed steel plants.

“By leaving the end-user plants undefined, the State Government has created a quota for DRI plants in OMC’s ore pool,” said an industry captain. This is also to compel the MoU-bound steel companies to lift ore at a higher price since they will be in an unenviable position with more competitors but without a level playing field, he added.

Since iron ore price for local industries is based on the weighted average of national e-auction price, the steel industries operating in the State end up paying way more than the market rate. The Cabinet’s decision for a go-ahead to just 30 per cent of the ore production for national e-auction will mean less supply and higher demand which would send the prices soaring, it is feared.

“As it is, the e-auction takes place every month and we have a new price on a monthly basis. The modified policy would have a spiraling effect. If the industries fail to lift the stock, they stand to forfeit their earnest money deposit,” the sources added.

The All-Odisha Steel Federation (AOSF) also expressed its reservations saying OMC’s base price fixation mechanism is unfair which leads to large volumes of unsold stock.

“Despite being unable to sell the offered quantity, OMC has stuck to higher base price. This change in policy is to tactfully allow non-MoU units to buy from OMC at weighted average e-auctions rates,” the association said.

However, the OMC allays the apprehensions saying that allowing non-MoU players in the long-term linkage would keep them out of the national e-auction since that used to be their only route to procure iron ore. With their interests taken care of, base prices might actually remain low, Managing Director Girish SN said.

Since transportation and logistics costs are a major component in iron ore prices, national players would have to factor it in before making bids in the auction process, he added.

Sour side

The decision is being seen as Government yielding to the lobby of sponge iron plants which faced problems in getting iron ore supply

Since iron ore price for local industries is based on the weighted average of national e-auction price, steel plants end up paying way more than the market rate

All Odisha Steel Federation also expressed its reservations saying OMC’s base price fixation mechanism is unfair



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