Iron Ore Agreement With Japan-Korea Gets Cabinet Nod, Will Impact NMDC

In a crucial development that will have bearing on the iron and steel sector going forward, government has approved the long term agreement with Japanese and South Korea for the supply of high grade iron ore. On Wednesday cabinet has given approval for the renewal of this long term contract agreement that will allow the supplying of high grade ore to steel mills of Japan and South Korea.  Importantly past long term contract has expired on March 31, 2015 and since then various speculation were going around regarding the renewable of this contract that will have bearing on the profitability of important PSUs like National Mineral Development Corporation (NMDC).

As per the approval Indian companies will supply high grade iron ore during the three year period from April, 2015 to March, 2018. The quantities covered under the agreement will be in the range of 3.8 million tonnes to 5.5 million tonnes per year. These quantities will be supplied mainly from the mines of the NMDC. At the same time responsibility of executing this agreement and supplying the iron ore rests with Metals and Minerals Trading Corporation of India Limited (MMTC), which work under the direction of Commerce ministry.

India is supplying high grade iron ore since last five decades to Japan and South Korea under Long Term Agreements at a much cheaper rate than the international market. These agreements will help both these countries to foster the relationship and strengthen Indo-Japanese collaboration in various areas of mutual interest, including technology transfer, joint venture, investment, etc. As per government release “this agreement will also help utilize surplus production of iron ore currently available in India” but it will also hamper the profitability of NMDC going forward and NMDC officials and steel ministry is not that happy with the renewal of this agreement.