The weatherman is saying the Indian south-west monsoon is on course. A good monsoon is what this country desperately needs for a rebound in farm production and reining in inflation in food prices. At the same time, plentiful rain will translate into substantial cuts in iron ore shipments from Goa to the world market during the monsoon. But will this virtual annual suspension in ore supplies from the rain lashed Goa be enough to lift ore prices which lost some ground more recently?
Goan exporters already smarting under a decree by China Chamber of Commerce of Metals, Minerals and Chemicals that its members should desist from importing iron ore with metal content of less than 60 per cent say the seaborne trade in the mineral and its prices will necessarily depend on what China decides to do with its large ore inventory. The price impact of shipment dislocation of around 7 million tonnes a month from Goa till September could well be cushioned by high ore stocks in China.
Indisputably miners engaged in production of steel making raw materials have prospered on account of China mostly. In fact such has been the rise in their fortunes that they are now inviting the wrong kind of attention of resource rich countries, particularly Australia. Led by the country’s prime minister Kevin Rudd, Australia has floated the idea of slapping a confiscatory 40 per cent tax on mining super profits. Its rank is likely to be swelled by a few other countries, including India considering levies on windfall profits. At the same time, some resource rich countries are rubbing their hands together over the possibility of winning investments that may get abandoned in Australia.
Even while Rio Tinto has been quick to deny a report that angered by the super profit tax move it is to shelve a major mine development investment in Australia, a leading local miner is unreserved in his criticism that the tax proposal will damage the country’s “reputation and lead to the deferral of mining projects and loss of thousands of jobs.” An Indian miner with ownership interest in Australia says Canberra’s tax reform idea should not move the iron ore market either way now though the prospect of tight supply of many kinds of minerals obtaining there in future remains a possibility.
The uncertainty of incremental flow of minerals from Australia will no doubt add to the Chinese zing to hunt for resources, particularly in Africa but also in Mongolia and Russia. One commentator says that if “capitalism” for whatever reasons fails to provide China with natural resources, then expect that “authoritarian” country to use all means to “grab” resources wherever available and in the process get political influence to the discomfort of the US. There are already quite a few instances of China acquiring mining rights in red zones like Liberia, Angola and Congo.
It is never easy to break the Chinese riddle. Has Hong Kong based China International Fund, which is to invest as much as $2.7 million in building comprehensive infrastructure linked to Kalia iron ore project in Guinea, got ties to mainland Chinese government? The company denies any such existence. But the US suspects otherwise. The Kalia concession is owned by Australian enterprise Bellzone. The infrastructure to be developed by CIF will support evacuation of a minimum of 50 million tonnes of ore from Kalia. In return CIF will have rights to buy all the Kalia ore at market price.
The Chinese strategy of getting access to oil and minerals by building infrastructure even in places with very high risk political quotient has so far worked out well. In contrast there is little to write home about India’s success rate in winning mining and drilling concession rights abroad. It defies logic that India is not exploring minerals and oil-for-infrastructure deals that have done China such good but raising concern and envy among developed countries.
In the meantime, much to the uneasiness of Indian ore exporters, the benchmark Australian mineral with 62 per cent iron is down 23 per cent from a record $186.50 a tonne in April as the physical market is acutely short of buyers.
The answer to China’s slow buying seen as the cause of price fall is perhaps to be found in that country raising iron ore imports by 42 per cent in 2009 to 628 million tonnes and then again buying 210.3 million tonnes in the first four months this year, a 11.6 per cent rise year-on-year.
China is seen to be drawing down its ore stockpiles. Yet another bear consideration is Beijing’s move to tame the realty market.
China aside, the ore market will have to contend with seasonally slow European summer months when holiday becomes de rigueur for all. Bank of America-Merrill Lynch has forecast an average ore price of $120 a tonne for the third quarter and $110 for the final quarter. Whatever that may be our steelmakers want ore exports to be rolled back for local value addition.
