India is planning to have its own iron ore price index, somewhat on the lines of a Platts or the London Metal Exchange (LME), but with riders; whereby it becomes easier for the Mines Ministry to determine royalty rates.
A consultation paper is being prepared as part of the Ministry’s plan to bring in some guidelines around iron ore pricing systems here, a source close to the discussions told businessline.
Pricing mechanism
This would be the second time that the Ministry would make attempts towards having a pricing mechanism in the country, which typically follows an average selling price method with state-run NMDC – primarily taking the lead in determining price of the key steel-making raw material.
“So, this isn’t going to be linked to the LME index or Platts. But would rather help in determining the royalty payouts for mines leased out. At present, multiple price points are considered – for example by OMC (Odisha Mineral Corporation), by NMDC, by the private players, and so on; an average determined, and royalty is calculated subsequently. This does not reflect the real price or the actual royalty that is due,” the official said.
According to a second official in the Ministry, in India, the price declared by mining companies is used to calculate the revenue of State governments from mining operations. States collect 15 per cent of the iron ore sale revenue as royalty. Another 2 per cent of the royalty paid is collected as district mineral fund (DMF), which is used for development activities in mining affected regions.
Quite often there are variations across States and these impact payouts. Earnings come down in case lower values are declared for higher grade of iron ore.
In fact, there have been some instances of mismatch between the grade quality and price realisation declared by mining companies, impacting royalty pay outs. This led to the Mines Ministry looking at price standardisation methods, the second official explained.
Top producers
States including Odisha, Chhattisgarh, Jharkhand and Karnataka account for nearly 96 per cent of the country’s iron ore production.
Typically, sale price of iron ore is also declared by the Indian Bureau of Mines (IBM) – depending on the grade that is the Fe content – but it comes with a lag – for instance, September price of iron ore, is declared in December. If there is a price variation – between IBM declared price and that declared by mining companies, the difference is paid to State governments.
“Overall, it is a complicated process. So, we intend to simplify it and make it real time based,” a second ministry official said.
At present, NMDC – India’s largest iron ore producer – has declared prices of Baila lump at ₹6,000 per tonne (iron content 65.5 per cent) and Baila fines at ₹5,060 per tonne (iron content 64 per cent) – down 5.5 per cent and 6.5 per cent, respectively, over October 23, 2024 prices. Prices were at ₹6,350 per tonne and ₹5,410 per tonne levels, previously.