Slow offtake by Chinese steel mills and decline in spot prices.
India’s iron ore exports declined 15 per cent in the first quarter of the financial year 2010-11 on slow offtake by Chinese steel mills.
According to an estimate by the industry body, the Federation of Indian Mineral Industries (Fimi), the country’s exports of iron ore slipped to nearly 20.8 million tonnes in the first quarter of the current financial year as compared to 24.5 million tonnes in the corresponding quarter of the previous year.
SBS Chauhan, advisor to Fimi, attributes two basic reasons for the decline in exports. First, the decline in spot iron ore prices. During the quarter, prices of iron ore, with 63 per cent of Fe content, fell 17 per cent to $150 a tonne by June end from $180 a tonne early April. Chinese steel mills are apprehensive of a further decline in prices ahead of monsoon when Indian miners generally tend to clear their inventory pile-up.
Second, Chinese government has advised local steel mills to restrict import of iron ore with Fe content of 60 per cent and above. Although, steel mills are resisting the government’s move, yet there is a bit of uncertainty among traders.
According to Chauhan, the Chinese government is working on to introduce a resolution which will restrict steel mills imports of lower than specified (60 per cent) grade of iron ore. If that happens, over 40 per cent of iron ore will find no takers.
Out of around 100 million tonnes of annual shipment of iron ore, a quantity of 40 million tonnes is exported in the form of fines with less than 60 per cent of Fe content.
Since, China is the only buyer of low grade iron ore from India, a law restricting such import will hit India’s overall exports of steel making raw materials.
China procures 60 per cent of ore from India with Fe content between 60-64 per cent. Japan and Korea are other buyers of lumpy iron ore from India.
Meanwhile, Australian government has proposed to levy windfall tax on iron ore to the tune of 40 per cent which will make imports from Australia costlier. But, the proposal is unlikely to benefit Indian exporters due to parity in prices.
“Other taxes in Australia are very low which is evident from swelling net profit of miners operating there. Therefore, the proposed windfall tax will raise prices of iron ore marginally. In contrast, levies in India are very high which make Indian origin iron ore costlier thereby, reducing parity on Chinese ports from Australian miners,” said a miner.
Iron ore with 63 per cent of Fe content was quoted between $120-125 a tonne (fob), a decline of $25-30 a tonne in the last quarter ending June. The lower grade iron ore is quoted even lower.
Meanwhile, stockpiles of imported iron ore at China’s major ports rose by 500,000 tonnes to 70.35 million tonnes as on July 2, according to the consultancy firm Mysteel.
The volume of Australia-origin ore swelled to 22.95 million tonnes, a rise of 450,000 tonnes. India-originated ore imports rose by 100,000 tonnes to 18.07 million tonnes. Ore from Brazil slipped 200,000 tonnes to 15.3 million tonnes.
Despite a fall in global iron ore prices, the public sector company, NMDC, hiked iron ore fines prices by Rs 320 to Rs 2,920 a tonne for domestic steel mills. NMDC produced 24 million tonnes of iron ore in 2009-10.
The company exports about three million tonnes of iron ore every year to Japanese and Korean steel mills at prices which form the benchmark rate for domestic consumers.
