Iron ore mining companies in India may be forced to revise their prices downwards this year when negotiations for new contracts open up. With Baosteel, China's largest steelmaker, said to be asking Australian iron ore producers for a 40% cut in 2009 benchmark contract prices, Indian steelmakers may be expected to follow suit.
But mining companies such as NMDC and Orissa Mining Corporation feel that domestic iron ore prices are much lower than international prices. "International prices are one and a half times higher than domestic prices. Iron ore companies, which are into long-term contracts, may have to review prices if domestic steel companies go for production cuts," an industry source told DNA on condition of anonymity.
Earlier, iron ore firms such as NMDC had gone in for a 40% hike in their long-term contract prices when Australian and Brazilian prices were 75-80% higher. But when market conditions turned bad, NMDC reduced its long-term contract prices by 25% in December. Orissa Mining Corporation, which decides on iron ore prices at the beginning of every quarter, also brought down its prices by 60-70% from their peaks in July and August.
Market sources said that global mining majors such as Vale, BHP Billiton and Rio Tinto are set for price cuts when 2009 contracts are signed. This is a different scenario to that in 2008, when spot prices more than tripled to $200 per tonne before sliding to around $60. Much depends on demand from the steel industry and steel prices and iron ore prices have been falling largely because of speculation that steel prices would fall.
Commodity analysts with Macquarie Research expect iron ore contract prices to be 20% lower than 2008 levels. In a report, they said, "We believe that it is more important to watch the industry trend rather than just focus on the current market balance sheet because it is an annual supply negotiation."
Source: DNA India
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