NEW DELHI | Jan 26, 2017: Government is contemplating a mechanism to make available NMDC iron ore to domestic steel companies at a reasonable price to help the sector, which is reeling under the impact of high raw material costs.

The steel ministry is toying with the idea of developing a cost plus formula for iron ore pricing, sources said, adding that there is no point in accumulating raw material reserves.

There has been a sudden spike in prices of iron, making the domestic steel industry uncompetitive in the global market. Also, there has been a lot of dumping of steel products.

"Now, NMDC is with the steel ministry. It is making profits. Now by making profit, it does not make much sense. Heavy profit is wiped off by the government through buyback. So, it may not be a bad idea to pass it on to the steel sector," a source said.

Iron ore is a key ingredient used in making steel.

"If the government evolves some formula of cost plus, that is the cost plus 30 per cent or 40 per cent profit, the rest can pass on to the steel sector. Then, it will be very vibrant," the official added.

NMDC is the country's single-largest iron ore producer.

"There is no point in accumulating raw material money and the hit point which is guided by the market forces gets into a loss," the official explained.

At present, the average iron ore prices of NMDC varies between Rs 1,985 to Rs 2,225 per tonne.

Sanak Mishra, Secretary General, Indian Steel Association, the industry body representing primary steel producers, said: "We have already requested the government for such a model (cost plus formula for iron ore pricing)."

Steel Minister Chaudhary Birendra Singh had earlier said the expert group that would be formed by the government to study sale of iron ore by NMDC will also analyse the mining giant's ore pricing and auction.

In the beginning of this month, NMDC raised the prices of higher grade iron (lumps) by Rs 125 per tonne to Rs 2,225.

The state-run firm also raised prices for iron ore fines, which are inferior grade ore, by Rs 125 to Rs 1,985 per tonne for January.

According to a company official, the rise in the prices of lump ore and fines has been due to various factors including a hike in international prices of iron ore.

NMDC is under the administrative control of the Ministry of Steel. It is the country's single-largest iron ore producer, producing about 30 mt of iron ore from three fully mechanised mines.

(Source: http://economictimes.indiatimes.com/)