The Federation of Indian Mining Industries, FIMI, took stock of the volatile price situation of the Iron ore segment, which drives prices in the entire mining industry. This volatility is not healthy for the smooth running of an industry that is an essential one, feeding all-important raw materials in the form of minerals and metals to every segment of economic activity on the planet.

This virtual session was held in September and addressed some key issues that have been creating problems in the mining industry: the fluctuations in prices of Iron ore, the quality, and the quantity of output. If these key issues are not addressed in a manner acceptable to all, the mining industry would continue to present risks to both suppliers and sellers of Iron ore. The event was themed, ‘Risk Management for Iron ore markets and prices’.

The entire value chain, cash flow, and profitability are in grave danger, believes FIMI Vice President R L Mohanty. Without, what he called, a “structural mechanism” in place, which would control the price, Iron ore would continue to pose problems in the marketplace. Iron ore being the main ingredient in steel making, the need to bring it to conform to some sort of structure is vital. And the way to solve this problem, feels Mr Mohanty, is to adopt scientific tools for monitoring the various fronts like quantity, quality, and pricing.

“The risks have shown to arise as a consequence of volatility in the exchange rates, interest rates and commodity prices,” concluded Mr Mohanty.

The situation in India

India, he said, produces around 220 million tonnes (MT) of iron ore annually, mainly mined in the Odisha, Chhattisgarh, Karnataka and Jharkhand, making the country one of the major players in the Iron ore industry worldwide.

In spite of a long history of Iron ore operations in India, the pricing depends entirely on the forces of demand and supply. This rough-and-ready system creates a kind of arbitrariness that is not conducive to proper trade ethics or practices. It also pits India at a distinct disadvantage in the content of the world market, where it is seen with misgivings because if its lack of a rational, business-friendly stability. No check or measure or standardised structure of assessment that would be scientifically acceptable exists.

As a result of this, both the buyer and the seller are not on sure ground when making a transaction. The need of the hour is a scientific approach. Mr Mohanty stated that, “There is a need for increasingly scientific approaches to the estimation of risks in mining. To mitigate the risk there is [a] requirement of scientific tools to inculcate improvement in quantity, quality as well as pricing of iron ore. So that, [the] mining industry can have access to security in future market.”

Demand for steel has rebounded after the first wave of the pandemic

The demand for steel has bounced back from the temporary recession that the world faced during the outbreak of the corona virus pandemic, and Iron ore has seen the biggest gains in pricing among the whole range of metals the world over. Increased governmental investments – by certain countries, mainly China – which aimed to re-vitalise this essential industry has not only created fresh demand for Iron ore, but also pushed up the quantities of the ore required for the ambition projects that have been planned and have been started in various parts of the world – again, mainly in China. Iron ore has been the best performing commodity in a year of volatile pricing owing to bottlenecks in supply as part of the world, from where the ore was mined and shipped to other countries, came under stringent and crippling lockdowns because of the pandemic. The demand for steel has been high in India as well as globally.

Risk Management for Iron ore has never been more important

With the world coming out of the Covid19 nightmare, in fits and starts, and in various degrees of confidence, and beginning to open up its industries – this is high time for manageable risks to be brought under control.

The commodity trade is inherently uncertain. Therefore, it is essential that the commodity cycles, and the present dynamics of the core segments like steel and iron ore markets and business implications are understood well, and the problems sorted to the best possible degree. The volatility of prices needs to be tempered if stability has to be brought into the trade in Iron ore – for all stake holders. These include mining companies, steel plants, and traders. Better management is the only way that all parties can participate in fair trade for the benefit of all.

Options that stakeholders take recourse to now

Mining companies protect their profitability by using the risk management tool of hedging. This is the only way they can safeguard their balance sheets and ensure revenue flow and, ultimately, profits. This is the only way they can protect themselves from the adverse movements of commodity prices.

This is not a healthy business practice, according to FIMI, who would like more clarity and transparency in the trade as this is the only way fair dealings would protect the interests of all at stake.

The way forward is science – testing, sampling and inspection

According to Mr Mohanty, the best way forward in this unstable market, in these uncertain times, is to embrace scientific methods.

In the final count, therefore, it is testing, sampling and inspection, by experienced professionals, and carried out frequently and stringently, that would provide the desired stability to the pricing and not have the rates be subjected to the constant and unpredictable flux of demand and supply.

Only scientific tools can mitigate the fluctuations in price and bring maturity to the marketplace. In this way no party would feel disgruntled or short-changed and be able to participate in open amity for better trade within and across international borders.