China’s reopening and the Indian government’s removal of export duties on steel, iron ore and pellets is set to benefit domestic iron ore producers like NMDC, allowing them to align domestic prices with global market trends and increase exports.
China’s revival from COVID-led lockdowns will boost demand for imported iron ore in 2023. This bodes well for Indian iron ore exporters like state-owned NMDC given their proximity to Chinese ports.
At the same time, India’s move to remove export taxes on steel and iron ore that were imposed last year will help realign domestic prices to global benchmarks. It will also provide flexibility to iron ore companies to export surplus production.
The export tax had distorted domestic ore prices and negatively impacted miners dependent on overseas markets to sell incremental output. Its removal brings pricing relief.
NMDC is India’s largest iron ore producer, mining over 35 million tonnes annually. The company has set an ambitious target of doubling this number to 100 million tonnes over the next five years, signalling confidence of strong domestic and export demand ahead.
The report highlights that NMDC has witnessed a robust 23% and 32% year-on-year growth in its iron ore production and sales volume respectively in the first five months of FY2024. This indicates the company is well on track to achieve its iron ore production guidance of 47-49 million tonnes for FY2024 and over 50 million tonnes for FY2025.
On the pricing front, NMDC increased lump and fines prices by 6.5% and 7.7% respectively in September 2022. This hike comes on the back of recovery in global iron ore prices. However, domestic realizations still lag import parity rates by 35%, indicating room for further hikes.
Analysts are in general bullish about NMDC. Sharekhan forecasts the company’s iron ore volumes to clock an impressive 12% CAGR over FY2023-26.
Higher volumes coupled with price hikes will lead to a 12% and 15% CAGR in NMDC’s EBITDA and PAT respectively over this period, as per the broker. They said the company’s cheap valuation of just 4.1x FY2026 EV/EBITDA and high dividend yield makes it an attractive bet.
The revival in China and the removal of export taxes come at an opportune time for India’s iron ore industry. India has key advantages that make it well placed to benefit from the global iron ore upcycle ahead.
Firstly, India possesses abundant iron ore reserves that can support rising exports. The country produces over 200 million tonnes of iron ore annually and has reserves to last another 80 years at current production rates.
Secondly, India’s proximity and long-standing trade ties with China ensure steady exports. Bulk of the country’s iron ore exports are shipped to Chinese ports like Tianjin and Qingdao, given the short sea voyage.
And lastly, India’s integrated steel infrastructure results in captive iron ore consumption. Over 90% of the ore mined in India is used domestically to feed the steel industry’s needs. This ensures stability and helps ride out global price volatility.
Prime Minister Narendra Modi has set a target of achieving 300 million tonnes of annual steel production capacity by 2030. Policies like the National Steel Policy 2017 are aligned with this goal.
His government is also coming up with a PLI scheme for specialty steel to incentivize production. The FTA signed with Australia allows import of coking coal at nil duty, which is a raw material for steel.
