China’s iron ore ‘equilibrium’ formula is likely to benefit Indian exporters of the ore more than its competitors Brazil and Australia, traders and exporters said.
The three stakeholders including overseas mineowners, Chinese steel mills and local mine owners are presently engaged in trying to thrashing out a formula for long term iron ore price that would be declared at ex-Chinese port. This means, the formula when ready, if implemented, the price of ore delivered at the Chinese port would remain the same irrespective of its origin and freight rates.
The development assumes significance especially from India’s point of view as Indian exporters would receive additional orders from China due to lower freight cost. On Tuesday, iron ore exporters to China have been struggling to chalk out a uniform price as Chinese importers always hesitate lifting contracted quantity if the spot price falls below the bilaterally negotiated price. Instead, they prefer to re-negotiate the price or switch to spot market to procure iron ore.
“Being geographically advantageous due to the lower freight rates compared to Brazil and Australia, India’s iron ore demand would certainly increase,” said Haresh Melwani, CEO, H L Nathurmal & Co, a miner and exporter from Goa.
According to trader sources, the three market forces are presently working overtime to chalk out a formula for the smooth functioning of steel mills. The decision is likely to come by the end of next month.
Freight rate is presently hovering in the range of $11-13 from all Indian ports compared to $26 from Brazil and $18-20 from Australia.
But, the world’s largest iron ore miners — Brazil and Australia — have advantages too. They can handle larger vessels, upto 300,000 tonnes which India cannot handle.
India has expertise in smaller vessels with a handling capacity in the range of 40,000 - 125,000 tonnes. This means if India wants to take advantage of the situation, it will have to improve the infrastructure to handle larger vessels, said Glenn Kalavampara, secretary of Goa Mineral Ore Exporters’ Association (GMOEA).
However, mini Chinese steel mills would continue to import iron ore from India as they do not require additional inventory, he added.
“Presently, the same thing is being practiced and we see no change in the “equilibrium” formula as exporters have to bear the brunt of the shipment cost. All prices are negotiated on a free-on-board (FOB) basis which means ex-Chinese port price,” said R K Sharma, secretary general of Federation of Indian Mineral Industries (FIMI).
The benchmark prices are announced by the three mining giants — Companhia Vale do Rio Doce (Vale), BHP Biliton and Rio Tinto — that are followed by every one. But, the ex-Chinese port price declaration will reduce re-negotiation practices, a trader said.
India exported about 105 million tonnes of iron ore mainly to China of which Goa constitutes over 45 per cent. Meanwhile, China imported a record 57 million tonnes of iron ore in April, an all-time high, up 9 per cent from a month ago and 33 per cent greater than last April.
Source : Business Standard