Lower Iron Ore Prices Have A Dual Impact On Indian Companies
Although lower iron ore prices benefit steelmakers, they impact mining companies negatively.
Global iron ore prices have fallen almost 55% from their 2021 peak, driven by China's weak economic growth and oversupply due to new miners.
This downtrend has slipped into India's price trajectory as well, with the Odisha iron price hitting a 52-week low of Rs 5,800 per tonne as of Aug. 13.
However, such low prices can have a dual impact on Indian companies, depending on whether they are steel or mining companies. Let's take a look at how this works.
Indian Iron Ore Prices
Odisha iron ore price decreased by 2.5% week-on-week as of Aug. 13 to hit a 52-week low of Rs 5,800 per tonne, according to IDBI Capital.
This drop follows state-run NMDC Ltd.’s reducing its iron ore prices, reflecting low buying interest, according to the brokerage, as buyers await the Odisha Mining Corp. auction amid a downtrend in steel and pellet prices.
Who Gets Impacted?
If iron ore prices remain weak, high-cost iron ore and steel producers will face operations risks, according to Macquarie Group.
For steel companies, lower iron prices translate to lower input costs, which can lead to better profit margins. This helps Indian steelmakers to be more competitive from a global market perspective. Key steel players, including the Steel Authority of India Ltd., Tata Steel Ltd., JSW Steel Ltd., Vedanta Ltd., and Jindal Steel and Power Ltd., stand to benefit.
Lower iron prices, on the other hand, are bad for iron ore mining companies, impacting their revenue and profitability. Key iron ore mining companies include NMDC Ltd. and Vedanta Ltd.
However, it is key to note that companies like the Steel Authority of India, Tata Steel, JSW Steel, and Jindal Steel and Power also own their own iron mines, so the impact could be mixed.
