KOLKATA (miningweekly.com) –  Even as clamour mounts among various segments of India’s steel industry over a shortage of iron-ore availability and the high prices of domestic raw material, evolving an acceptable benchmark price model for iron-ore is proving elusive for the government.

Various steel producers, including blast furnace operators without captive iron-ore mines as well as direct reduction induction (DRI) furnace operators, have demanded that the country’s largest iron-ore producer, government-owned NMDC Limited, roll back hikes in January prices. The steel producers claim that the miner had effected an increase in prices even as a bull run in international prices was fizzling out and on a downward curve, as per current month trends.

While domestic miners, including NMDC, claim that their domestic price was based on the import parity of iron-ore, neither various industry segments nor the government have any reference point to estimate price movement in either direction in the absence of any standardised benchmark price set by the government, according to a senior government official.

Meanwhile, the Mines Ministry has appointed a committee tasked to evolve a benchmark price for domestic iron-ore, but differences between miners and steel producers over an acceptable methodology to evolve such a benchmark are proving to be a major hurdle in framing a price model that would be acceptable to all segments of the industry, notes the official.

The Ministry-appointed committee had only two bases for working out a benchmark – an import parity price or an export parity price, but both the options were being opposed by the conflicting interests of various segments of the industry.

A section of steel companies in their representation have pointed out that logistics and handling costs form a significant part of raw material costs and vary vastly based on the distance of plant location from the iron-ore source. Hence, an import parity price base would not be relevant as it would deprive domestic steelmaking of the benefit of the country’s vast iron-ore resource.

Instead, steel producers want a benchmark based on an export parity price, considering that overseas shipments are at least 10% to 15% lower than the domestic price of iron-ore.

However, miners are not willing to link the export price to the domestic price of the raw material, with one member of the Federation of India Mineral Industries pointing out that India’s predominant export shipments are of medium- and low-grade iron-ore fines that are not accepted by local steel mills at their current level of technology. The prices would not be comparable.

The need to find an acceptable domestic benchmark price has become all the more urgent in view of high volatility in international prices and a projected fall in domestic production in the current financial year, resulting in a push to prices and issues of volume availability for local steel mills, says the government official.

In 2017/18, Indian iron-ore production is estimated to be lower than the 191-million tons produced in the previous financial year, though the extent of the shortfall in volume is yet to be fixed by the government. The expected fall in the current year’s iron-ore production comes after a registered growth in production over the past two consecutive years.