Iron ore at a four-year low, but Indian steel prices may not follow

Iron ore futures in Dalian fell toward CNY 660 a tonne on 27 October, a fresh four-year low, after prices first touched four-year lows on 22 October^1, 3. The Metals Market Index's 61% Fe seaborne index was $89.20 a dry tonne on 23 October, against $100.44 in September on the IMF's monthly series^4, 5.

For Indian steel buyers, the question is whether that fall reaches their invoices. The early answer is that it does so only partly, and slowly.

Why ore is cheap

The supply side has loosened quickly. Global iron ore shipments rose by 3.89 million tonnes in the week to 18 October, to 34.77 million tonnes³. Arrivals at 47 Chinese ports rose by 2.73 million tonnes to 28.35 million tonnes³. Trading Economics, in a note carried by Hellenic Shipping News, expects shipments from Rio Tinto, BHP and two other large producers to rise by nearly 20 million tonnes in the fourth quarter¹. Guinea's Simandou mine is still ramping up¹.

Demand has not kept pace. The blast furnace operating rate at 247 Chinese steel mills was 80% last week, down 4.3 percentage points from a year earlier, as mill profitability worsened¹. SMM said mills stayed loss-making, bought only as needed and pushed for lower prices⁶. China's ore imports still rose 4.1% in January to September, to 967.8 million tonnes, but growth slowed to 0.5% in the third quarter, according to Banchero Costa⁷.

China's state buyer has changed the mood too. China Mineral Resources Group told several mills it had reached a new supply agreement with Rio Tinto, after earlier asking some mills to pause talks on shipments from September^3, 8. Wood Mackenzie argues that CMRG is moving from central purchasing to shaping price discovery, and that a centralised buyer has more bargaining power in a market with a marginal surplus⁹.

Freight is drifting lower as well. The Baltic Dry Index fell for a third session to 2,603 points on 27 October, and the capesize index, which carries iron ore and coal, slipped 0.6% to 3,702¹⁰. SMM, writing before those falls, said freight rates had resumed an upward trend and could squeeze import margins, so the direction there is not settled⁶.

Why Indian steel may not follow

Domestic prices reached a four-year high in September as costlier coking coal and iron ore lifted mill costs, according to The Economic Times². JSW Steel chief executive Jayant Acharya said prices had recovered because of demand, with Indian steel consumption up 7.5% in the first half¹¹.

"We have seen a recovery in prices, which is fundamentally because of the demand," Acharya told the paper¹¹.

Demand is expected to stay firm. The World Steel Association expects Indian steel demand to grow 7.9% in 2026 and 8% in 2027, while Chinese demand falls 2% this year¹².

Costs outside ore are still rising. The rupee traded at 95.12 to the dollar on 27 October, 7.8% weaker than a year earlier, which raises the rupee cost of imported coking coal and dollar freight¹³. Brent crude was $115.22 a barrel on 20 October, up 89.8% from a year earlier¹⁴. Indian mills already faced a margin squeeze from higher global coking coal prices caused by supply disruptions in Australia and China, The Economic Times reported in August².

The strain shows in results. Vedanta Iron and Steel reported a loss of Rs 324 crore for the September quarter, against Rs 477 crore a year earlier¹⁵. It blamed seasonal disruptions in iron ore production, planned shutdowns and higher input and conversion costs¹⁵.

One gap matters here. The sources reviewed for this article did not include an October revision of NMDC's ore prices or of Odisha auction results, so Indian ore costs cannot be confirmed from public pricing.

The import ceiling

Cheap imports are the counterweight. India's steel ministry has decided against new curbs on cheap steel imports for now, even as imports mainly from China rose sharply, according to The Economic Times¹². The paper also reported that Indian prices were rising despite weak global markets, with Chinese oversupply pressing international prices and cheaper imports a key risk².

That shapes how far ore savings travel. A mill that cuts prices gives up margin; one that holds them risks losing orders to imports. Indian mills have some cushion: CRISIL expects secondary producers' operating margins to reach 6.6% this financial year, and integrated players to earn Rs 1,500 to Rs 2,000 more EBITDA per tonne¹².

Forecasts point to a soft but not collapsing ore market. SMM expects ore to trade range-bound with a weaker bias and import margins to stay near breakeven⁶. MMI calls a range-bound view appropriate⁴. Wood Mackenzie sees a market of marginal surplus⁹. None of them says Indian steel prices must fall with ore.

What to do now

• Ask each mill for a cost build-up: ore base, coking coal, power, freight and the exchange rate used. Ore is one line in that list, not the whole cost.
• Price rupee exposure openly. At 95.12 to the dollar, the currency takes back part of any dollar ore saving¹³.
• Split Q4 and Q1 volumes. Lock part at today's price and leave part floating on a published index with a fixed review date.
• Check import parity before signing. With the ministry holding off on new curbs, Chinese offers set a practical ceiling on Indian mill prices¹².
• Watch three signals: Chinese mill run rates, the CMRG and Rio Tinto settlement terms, and whether NMDC and Odisha ore prices track Dalian lower^1, 3.