Mining units bank on China boom

IN FOCUS/IRON ORE

The iron ore industry appears to be well poised in the short term but, as in the case of the iron and steel industry, the health indicator of the industry depended on China, a report released by ICRA indicated.

The report has forecast good prospects for the iron ore industry, on the back of strong demand in steel.

The report points out, with continued government focus on infrastructure development, a six per cent rise in domestic steel demand is expected in fiscal year 2005, which indicates good prospects for the domestic iron ore industry as well.

More than 90 million tonne of capacity expansion was expected in less than a decade to meet the increasing demand requirements.

The Indian steel ministry has set a target of 100 million tonne steel capacity by 2020.

Market analysts said, the steel capacity expansion augured well for the iron ore industry because the export market could be drying up in the medium term.

However, the main driver for exports was China, which has been lapping up iron ore.

Chinese iron ore imports were expected to increase from 148 million tonne to 200 million tonne, in the current year. On the back of the huge demand from China, the Asian consumption would increase from 655 million tonne to one billion tonne.

According to the ICRA report, India exported around 62 million tonne of iron ore in fiscal year 2004 and China was the main driver for exports.

However, there was a lot of uncertainty regarding the demand growth for both steel and iron ore in China. "Currently, the Chinese iron ore market seems to be oversupplied causing the Chinese buyers to cancel some of their orders. Moreover, domestic steel producers are pressurising the government to limit iron ore exports to China in response to restrictions imposed by China for met coke exports, another raw material for steel" said the report.

But, back home, industry sources reassured buyers that the projected domestic demand would be adequate. International research reports also corroborated that Indian iron ore exports would reach a plateau in the next few years as domestic demand would increase in line with growth in its steel production. After Brazil, Australia and China, India was ranked fourth in the world iron ore production.

India contributed around 8.6 per cent to the world iron ore supply. India, operating at more than 100 per cent of its production capacity, produced around 114 million tonne of iron ore during fiscal year 2004.

While exports have been the prime drivers of domestic supply growth since fiscal year 2001, the increase in domestic demand in last two financial years, has contributed significantly in giving boost to domestic production, said the report.