Indian iron ore exporters expect spot prices to rise as a result of the tie-up between two of the world's biggest iron ore miners, Rio Tinto and BHP Billiton.
India produced 220 million tonnes of iron ore in 2008/09 (April/March) and exported about half of that, mostly to China.
"The tie-up is good news for us as it would push up Chinese spot prices and narrow down the gap with long-term prices for iron ores," Rahul Baldota, president of Federation of Indian Mineral Industries (FIMI) told Reuters.
"With this deal the bargaining power of suppliers would be more and the Chinese spot prices would go up as there would now only be two major suppliers," he said.
Asian customers source roughly 60 percent of their iron ore from Australia due to geographical proximity.
The Rio/BHP combination would supply around 270 million tonnes of ore a year, while the world's top producer, Brazil's Vale, supplies around 240 million tonnes a year.
Baldota said a such tie-up would act as a precursor to bring parity between the price at which China buys Indian ore in the spot market and long-term prices.
Currently, Indian iron ore prices range from $48-$52 per tonne on a free on board basis, while freight costs for sales to China would be about $12 per tonne.
Exporters of low-grade iron ore said the tie-up could ensure higher prices for them from the Chinese buyers.
"We may gain from slightly firming up of Chinese spot prices," said Glenn Kalavampara, secretary of Goa Mineral Ore Exporters' Association.
Chinese importers mainly buy low-grade iron ore varieties (50-55 percent iron content) from India, which is shipped from ports in the western state of Goa.
"We are a gap supplier to the Chinese market. That is how we are trading with China. When sea freight goes up, the Chinese buyers turn to us," said R.K. Sharma, secretary-general of FIMI.
Source: Reuters
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