China agrees to ore price hike

Negotiations for iron ore prices for the financial year beginning April 1 began at 30 per cent higher and it appears that it would be more than 65 per cent.

According to sources, Brazil's Vale and Japanese mills have settled for a 65 per cent increase in 2008 benchmark prices for iron ore fines which, significantly, has been accepted by Chinese mills.

The China Iron and Steel Association is likely to come out with a formal statement this month regarding its acceptance.

This implies that new prices are unlikely to be less than 65 per cent in other regions as well.

This increase is over and above the huge increase that came last year. Global spot prices of pellet, a value added iron ore product, increased from $110 in April 2007 to $225 for deliveries to China and India.

Back home, domestic miners are gearing up to toe the international price line. National Mineral Development Corporation (NMDC) sources said, "The hike from April 1 would not be less than 65 per cent domestically."

Currently, NMDC has received offers for iron ore fines from Donimalai at Rs 3,500 a tonne and Bailadila Rs 4,000 a tonne. For long-term customers, however, the price is pegged at Rs 1,783 a tonne and sources indicate that they would go for a hike since it was way below the market price.

Most of domestic steel majors without captive mines source iron ore, their chief raw material, from NMDC and pellets from Kudremukh Iron Ore Company (KIOCL).

KIOCL FOB Mangalore prices increased 89.3 per cent during March 2007 to Rs 7,623 a tonne in February 2008 while NMDC increased mid-term prices by Rs 574 with retrospective effect from October 1, 2007.

Steel companies that have rolled back their price hikes partially, at the behest of the steel ministry, are urging the government to prevent NMDC and KIOCL from increasing prices in April.

According to sources, last year, NMDC computed the base price taking the rupee-dollar rate into account at 43.50. As the rupee is hovering at 39 against the dollar at present, the impact of the mid-term hike shouldn't be huge.

However, miners appear to be set for an increase from April 1 in line with international prices. They have already communicated to the ministry that the prices for long-term contracts were much below the market price.

Globally, term iron ore prices had been widely expected to rise by 50 per cent or more, after spot prices soared to record highs in 2007 and Chinese steel mills' demand showed no signs of abating. The rise could squeeze margins for the steel industry, which is already facing rising costs for coke, coal, and shipping.

Nippon Steel said on Monday it and Posco had agreed to pay $78.90 a tonne for Itabira fine ore, a rise of 65 per cent, in the year starting April 1.

"If Nippon Steel and Baosteel agree to the 65 per cent price rise, then we'll have no choice but to accept the deal because being such a small player, we don't have much bargaining power," a purchasing official from Taiwan's China Steel told Reuters.