Iron ore exports from India may fall this year if the recent guidelines of the Chinese iron ore trading association on the quality of the ore being imported is implemented. The local iron ore traders have been banned from importing iron ore with less than 60 per cent iron content.
India, which is a major exporter of low grade iron ore or iron ore fines to China barring Brazil and Australia, is expected to face the heat due to the decision.
“Though there is no official communication yet from the Chinese side, the decision will definitely impact exports from the country,” R K Sharma, secretary general of the Federation of Indian Mineral Industries (FIMI), said.
He, however, said though iron ore traders were only restricted from importing iron ore fines, steel companies would continue to do so. Sharma declined to give an estimate of the fall in exports saying its too early to arrive at a number.
India, which produces around 220 million tonnes of iron ore every year, exports close to 105-110 million tonnes each year. As per government estimates, India exported close to Rs 18,000 crore worth of iron ore in 2007. Over 60 per cent of iron ore exported from India worth about Rs 10,800 crore are iron ore fines and China is the biggest market.
As per analysts, this decision will also see some kind of consolidation in the iron ore trading industry.
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“As China wants to put some specifications on the procurement centres for iron ore fines, this may see some kind of consolidation in the Chinese industry,” Pankaj Pandey, an analyst with ICICI Direct, a unit of Mumbai-based brokerage ICICI Securities said.
Most of the iron ore trading in India are in the hands of small traders and this decision may see more organised players entering the field, he said.
Giving the rationale behind the Chinese decision, he said, “They may want to check price volatility in the commodity which arises due to hoarding and speculation by small traders.”
Organised players in the industry like Sesa Goa may be impacted in the near-term without any long-term repercussions, he added.
Further, Goa, which is a major iron ore fines exporting state, will be impacted adversely by this decision.
“Goa, which exported around 50 million tonnes of iron ore in FY10, will be hit the most if this decision is implemented,” Swaminathan Sridhar, executive director, Goa Mineral Ore Exporters Association said.
As most of the iron ore exported from Goa are low grade iron ore or iron ore fines, exports will definitely fall, he added.
He, however, said that the decision seemed to be temporary with an intention to cool down prices of fines and to cut large stock of this ore in Chinese ports.
Prices of iron ore fines are now ruling around $60-80 per tonne on a FOB basis, higher by 30 per cent over last year.