"We foresee domestic iron ore prices rising three to four percent during 2019. This would have a direct bearing on 62 percent of the steel production that is based on supply from merchant miners," Crisil Research Senior Director Prasad Koparkar said in a statement.
Further, domestic steel prices are likely to soften following global cues, he said.
"This would heap pressure on margins of steel makers who lack captive iron ore supply - especially long steel players - impacting their gross spreads by two-four percent," he added.
Global iron ore prices, the rating agency said, have surged 30 percent to USD 90 per tonne as of February 2019 from USD 69 per tonne in December 2018 because of supply disruption at Vale's mines in Brazil, which account for 90 percent of the country's production of high-grade ore.
Given that China sources 20-25 percent of its 1.06 billion tonne iron ore imports from Brazil, the disruption would keep global prices elevated in the near term as offsetting shortage takes time. "That said, moderating demand growth prospects in China could weigh on the prices in the second half of 2019, keeping them at USD 72-75 per tonne on average for the year," it said. "That augurs well for Indian miners. After a continuous decline since November, the local miners took price hikes of Rs 600-700 per tonne for 62 iron ore fines and Rs 800-900 per tonne for pellets in February," it said.
Elevated global prices, expectation of further depreciation of rupee, and modestly healthy demand growth prospects of 5.5-6.5 percent in domestic steel industry are expected to provide reasonable room for domestic miners to enjoy high prices through 2019, especially in the first half.
Source: Money Control
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