Chinese demand fuels local spot iron ore prices

The spot trading of Indian iron ore has picked pace dramatically in the last two months following an increased demand from China, the world's largest steel producer.

China has increased its purchases of the mineral from India as Australia and Brazil, the top two global ore suppliers, have not been able to meet the Chinese demand due to various reasons.

The current revival in spot prices comes after the market was almost brought to a standstill following the Union government's export duty of $8 a tonne in February.

While Australia is facing tremendous congestion at its ports and bad weather, Brazilian exporters are at a disadvantage due to spiralling freight charges. Hence Chinese steel mills have turned to Indian iron ore to compensate for the short supply. Consequently, the price of Indian iron ore (63.5 per cent grade) has reached an all-time high of $103 a tonne FOB (free on board - Indian port) fuelling spot trading in the process. Prior to August 20, the price was $95 a tonne and during the first week of August $89 a tonne.

The domestic mining companies and traders expect the trend to continue as Chinese steel mills prefer spot trading with Indian exporters under the prevailing circumstances. Close to 75 per cent of the Indian iron ore exports are through spot trading. "Compared to Brazil, India is closer to China. This makes Indian iron ore attractive for the Chinese mills. Spot trading has improved dramatically compared to the situation in February. It is an ongoing process," said Shrenik Baldota, executive director, Mineral Sales Private Ltd, the second largest private sector iron ore exporter.

The China Chamber of Commerce of Metals Minerals and Chemicals Importers and Exporters, in its advisory to domestic steel mills, said Indian iron prices could hit $125 a tonne if Australian and Brazilian exporters continue to miss targets.

Between January and July, China imported 83.72 million tonnes of iron ore from Australia, 54.26 million tonnes from Brazil and 51.6 million tonnes from India. According to the Federation of Indian Mineral Industries (FIMI), the positions are likely to be altered by the end of the year. Last year, India exported 91 million tonnes of iron ore and China accounted for 84 per cent of it. In 2006, China imported 325 million tonnes of iron ore. This year, the target set is 403 million tonnes.

"Since Australia and Brazil are not meeting their targets, the demand for Indian iron ore will further increase in the coming days. Besides, the Chinese steel production is set to go up by 60 million tonnes this year. The demand for iron ore will continue to grow," FIMI Advisor S B Chauhan said.