Indian iron ore fines prices have corrected by about INR 1,400/mt (over USD 22) year till date; while fines prices have increased by INR 1,100/mt (USD 18) in 2014. Increasing iron ore supply in domestic market coupled with falling global iron ore prices give room to further correction.
Factors that may pull iron ore prices further down are listed below.
Increased Iron ore Production
The domestic iron ore production was recorded at 125-127 mnt (provisional) for FY15 and is expected to grow over 25% in current financial year. The growth will come from NMDC, who has given a guidance of 35 mnt in FY16 against 31 MnT in FY15.
Increase in Environmental Clearance (EC) for miners like Rungta and Serajuddin in Odisha would significantly increase supply in domestic market.
Production in Karnataka is expected to increase to 23-24 mnt in FY16. Goa is also likely to commence production towards the second half of the current fiscal.
MMDR Act (Mines and Minerals Development & Regulation Act)
Amended MMDR act which gives a provision for mines which have completed 50 years can continue production for next 5 years in case of merchant and 10 years in case of captive.
Lower Iron ore prices in global market
Seaborne iron ore prices which fell to 10-year low, will give room for imports in Indian market. Indian imports were recorded at 15 mnt in FY15 and are anticipated to reduce to 5-7 mnt in the current financial year. However, if global iron ore prices continue to fall further, Indian imports may increase to 7-9 mnt putting additional pressure on Indian iron ore prices.