Mumbai, Iron ore prices are expected to be elevated over the near-mid-term due to supply-side constraints clubbed with a simultaneous robust revival in demand post Covid-19 led demand shocks, India Ratings and Research said on Wednesday.

In its iron ore market review, the agency said the domestic supply shortage is primarily driven by a delay in the ramp-up of Odisha iron ore mines post auctions in March 2020 due to the high, unviable premiums and Covid-19-led disruptions.

As per the review, various measures have been taken by the central and state governments to address the short supply, but they are likely to be insufficient in meeting demand over the near term.

Further, it predicted a slight softening of prices, once supply improves, it would remain at elevated levels due to the structural change in the cost of miners paying premium, it said.

The global supply side has also been constrained by the supply disruptions in Brazil and South Africa.

"Conversely, both domestic and global steel production levels have been on the rise post Covid-19 disruptions. Domestic production has improved since 2QFY21 with output reaching pre-Covid levels,"

Besides, Ind-Ra expects demand to grow further by 16-18 per cent YoY in FY22 on the back of a low base.

"Domestic iron ore prices in December 2020 have increased to Rs 4,610 per tonne, 28 per cent MoM and 95 per cent YoY higher. China leads the global demand revival in 2020 and is likely to register a six per cent YoY increase in crude steel output despite Covid-19 led disruptions, driven by demand from the construction and infrastructure sectors."

"Global iron ore prices increased to $159 per tonne in December 2020 and are at the highest levels since March 2013."

According to the review, the fundamentals for pellet manufacturers are conducive for growth, given the high domestic realisations led by the strong demand and limited supply, and the high demand from the export market.

"Domestic pellet manufacturers have gradually reduced export levels from 1QFY21 when the domestic demand was subdued."

"Captive producers with iron ore mines are better placed than pellet manufacturers who procure iron ore externally, given the high iron ore prices."