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NMDC aligns its iron ore pricing mechanism with the market realities

Steel News - Published on Fri, 19 Sep 2014

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Iron ore market has remained volatile in the aftermath of 2008 global crisis. The halcyon days of annual pricing was over. Pricing period was squeezed to quarterly followed by monthly and even daily to bring transactions closer to reality. Indian miners were somewhat insulated from the global turbulence as they catered to captive market domestically and being minor player globally.

However as the market levels weakened with passage of time the domestic mills too became price and cost sensitive with import parity working out in favor of imports over domestic supply. Indian mining majors found it tough to adopt flexible pricing and marketing policy as most of them were public sector behemoths more inclined to follow government guidelines rather than adopt flexible pricing practices.

In the old pricing mechanism quarterly prices were fixed on the basis of the price level prevailing in the quarter prior to 1 month of the present quarter in the international market. For example April-June quarterly price will be average of the prices prevailing in the December-February in international market. Resultantly the price fixed used to be out of sync with market.

In the emerging scenario during which Indian iron ore production was severely scuttled owing to clamp down on illegal mining steel mills opted for import to meet their production requirement. More so with the prices being mismatch it enhanced difficulty for the steel mills as well as the miners.
As pressure mounted on the miners to dovetail their prices with the international price levels NMDC took the lead by emerging from the cell by adopting dynamic pricing policy. During the tenure of Mr SK Das former Director Commercial of NMDC, a decision was taken to make the pricing subjective to the prevailing market sentiments to eliminate mismatch.

Pricing became a monthly affair with the following parameters
1. Prevailing iron ore market price (both domestic and international)
2. Sales performance in previous month
3. Landed import price
4. Order booking status

The proposal was sent to pricing committee instead of Board of Directors (earlier) comprising of functional directors and Chairman for final approval.

Although some other public sector companies viz., Orissa Mining Corporation (OMC) are still following the archaic method of quarterly tender but the practice adopted by NMDC has become norm for most other mining companies.

Source – Strategic Research Institute, Steel Guru

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Posted By : admin on Fri, 19 Sep 2014
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