NMDC’s Sales Fall To The Lowest In At Least Six Years

Sales of NMDC Ltd. fell to the lowest in at least six years in August as demand for steel fell and one of its key mines remains non-operational.

India’s largest iron ore miner reported a 35.8 percent year-on-year drop in sales last month, to 1.49 million tonnes, according to its exchange filing. That’s the lowest since at least October 2013. Also, the percentage drop in sales is the steepest since April 2018.

NMDC’s production, too, fell 3.4 percent year-on-year in August, the most in six months, to 1.41 million tonnes. The decline in output is mainly due to the ongoing halt in operations at its mine in Donimalai, Karnataka. The miner’s production in the southern state declined by 21.5 percent during the month.

NMDC suspended mining at Donimalai in November last year after the Karnataka government decided to impose an 80 percent premium on sales of iron ore from the mine. After the Karnataka High Court dismissed the state’s decision to claim a larger share of revenue from sale of the raw material for steelmaking, it decided not to extend the lease for mining at Donimalai. The miner then sought relief from the central government, which stayed the state’s order.

The 7-million-tonne-per-annum mine in Karnataka constituted 17 percent of NMDC’s total output in the financial year ended March 2018. Overall, the company has mining operations in two states—Chhattisgarh and Karnataka. Chhattisgarh accounts for 72 percent of NMDC’s iron ore production and Karnataka contributes the rest. Output from NMDC’s mines in Chhattisgarh rose 18 percent in August.

Also, demand for steel in India could grow at the slowest pace in three years as economic growth fell to a six-year low. The automobile sector—on which the steel sector depends for 10-12 percent demand—too, is facing its worst slowdown in more than a decade. And infrastructure sector output in June grew at its slowest pace in more than four years.

The global steel outlook, too, is turning increasingly bearish. ArcelorMittal SA, the world’s biggest steelmaker, trimmed its 2019 forecast for global steel demand to 0.5-1.5 percent from the earlier guidance of 1-1.5 percent.

Still, NMDC’s production rose 20 percent year-on-year to 11.81 million tonnes in the first five months of the ongoing fiscal. Sales, too, increased 14.3 percent over the last year to 12.62 million tonnes during the period.

Analysts View

Emkay Global Financial Services is optimistic. “We don’t see a big anomaly in these numbers as monsoon, coupled with a slowdown in steel sector, weighed on the demand for iron ore, besides Donimalai issue,” Vishal Chandak, senior research analyst at the research firm, said. “We expect some recovery to take place from the third quarter once the monsoon recedes and construction activities pick up, leading to an uptick in demand for steel and in turn for iron ore,” he said in a note.

But JPMorgan downgraded the stock to ‘Neutral’ after the Karnataka government decided to withdraw extension of the mining lease and auction the Donimalai mine. The brokerage fears if the Chhattisgarh government will follow suit after mining leases expire in March 2020.

Of the 19 analysts covering the stock, 10 have a ‘Buy’ recommendation. This suggests a potential downside of nearly 22 percent, according to Bloomberg data.

Shares of NMDC are trading nearly 2 percent higher at Rs 81.25 apiece. That compares with a 0.02 drop in the benchmark NSE Nifty 50 Index.