The depreciation of the Rupee seems to have offset the impact of 5% export duty on Indian iron ore, thus acting as a boon for Chinese steel companies which are trying to slowly roll back production cuts announced in October 2008.
As a result, iron ore exports have been climbing since December 2008 led by rising demand from China. Experts, however, say the trend may not be sustained in March.
India’s iron ore exports jumped 21.53% to 13.9 million tonnes in January 2009 against 11.5 million tonnes in January 2008, as per the joint study conducted by Minerals and Metals Trading Corp, Goa Mineral Ore Exporters Association and Kudremukh Iron Ore Co.
While large mining companies with clout among foreign buyers see it as an opportunity to withstand the pressure of a cut in long-term contract prices, domestic steel companies like Tata Steel, JSW Steel, SAIL and Ispat Industries are also keeping a close eye on it.
“Globally, demand for steel has moved up marginally in two months. Some Chinese steel mills that had shut down as a result of low demand have now increased production levels. This has, in turn, pushed up the demand for ore,” a Delhi-based analyst told ET.
Last month, spot iron ore prices in China rose to $85 per tonne — up from $65 level in November-December 2008 — as Chinese steel makers were seen stocking up iron ore.
“Iron ore f.o.b. prices had fallen to $60-65 per tonne in December which made Indian ore attractive. Chinese steel makers bought iron ore in bulk, which is showing in higher iron ore export figures. However, demand for iron ore will be bleak for some time as Chinese steel makers are sitting on huge stocks,” independent steel and natural resources consultant AS Firoz said.
Federation of Indian Mining Industry (Fimi) president Rahul Baldota anticipates a fall in exports in March. “We don’t foresee a sharp increase in demand of iron ore from China at least for a few months. Iron ore exports started moving southward from February-end and will continue to fall in March as well.”
With negotiations due to start for annual price contracts for deliveries from April 1, 2009, the industry is bracing for some hard bargaining with steel mills in Japan and China negotiating for price cuts of up to 40%.
“A further price slide seems irresistible. We expect international prices to settle at more realistic levels, once serious price negotiations get underway,” a top industry official said. In India, long-term prices are ruling at around $90 per tonne while spot prices are hovering around $73 per tonne.
“If negotiations lead to lower prices, it will become the global benchmark. We are also expecting a similar cut in prices for long-term contracts with NMDC,” an official with a Mumbai-based primary steel maker said. However, an NMDC official said, “Given rupee depreciation, we will try to resist price cuts to some extent.” The company sells bulk of its 30 million tonnes output to domestic steel companies.
Source: Business Standard
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