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nmdc steel limited: Pricing pressure seen offsetting volume growth benefits for NMDC

MUMBAI: State-owned iron-ores miner National Mineral Development Corporation (NMDC) has cut the prices of its lumps and ores for the second time this quarter, which is seen offsetting some impact of the robust sales volumes the company has seen so far this quarter.

The miner has slashed prices by 7-11% last week, in line with the weakness in global iron ore prices, and its total price cuts since late March are now more than 13%. Australia is the largest producer of iron ore in the world, and price of Australian iron ore, which is used as a benchmark, is down nearly 11% month-on-month in May.

The majority of the Australian mining output is used by processors in China.

NMDC has a production target of 46 to 50 million tonne for the current financial year, up 13-22% as compared to the previous financial year. The company is betting on enhanced efficiencies, monsoons in Chhattisgarh being normal, and the upgradation of the Kumaraswamy mine for this increased output.

“If it (Chhattisgarh monsoon) behaves normally then of course we get a greater time for mining, and it really helps us. If the monsoons are affected then the production to the extent of almost around 1.5 to 2 million tonnes is affected,” Amitava Mukherjee, the chairman and managing director of the company told analysts in a recent call.

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NMDC’s production in April-May so far has been 7.22 million tonne, nearly 14% higher as compared to the previous year, while sales have been more than 22% higher at 7.05 million tonne. “Our April was the biggest April ever… but as of now our progress in May has been much more satisfactory as compared to any of the previous May so Q1 also we expect that we would end up as one of the highest Q1 in the history of NMDC,” Mukherjee said.NMDC’s sales volumes are seen growing in tandem with the production and the company expects NMDC Steel to be major customer with offtake of about 4.5-5.0 million tonne of iron ore per annum once the plant starts functioning at full capacity.

The company confirmed that the Nagarnar steel plant will be commissioned by the end of June. Ancillary plants at the site – the coke oven batteries, the central plant, the oxygen plant, and the power blowing station have already been commissioned. The company has spent nearly 23,000 crore as capital expenditure on the plant as on date.

“NMDC Steel Limited is going to be one of our permanent and major customers going forward,” Mukherjee said. NMDC eventually plans to produce 100 million tonne of ore each year.

Mukherjee, though, said that pricing remains a concern. “…we have been able to hold on as of now but there are several pricing pressures and several headwinds, there is no doubt about that,” he said.

The company’s operating profit made on every tonne of ore sold rose more than 46% sequentially to 1,742 rupees in the March quarter, but was 21% on lower on year, largely on account of weaker realisations.

For 2023-24 (Apr-Mar), Nuvama Institutional Equities expects the company’s earnings before interest, tax, depreciation and amortization to remain flat as the benefit of higher volumes will be offset by weaker prices.

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