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Iron ore prices may fall

March 12, 2007 13:30 IST
Iron ore prices are expected to fall in next couple of months following the imposition of duties on exports.

With China announcing no future contracts, the industry foresees a glut in the market, which would impact domestic prices. Since the duty was announced in the Budget, China ore traders have stopped imports from India.

Chinese traders are insisting on the agreed price for all contracts signed before March 1 and have rejected price increase under force majeure clause.

According to the mining industry, of the 100 million tonne of iron ore exports, around 85 million tonne is iron ore fines, which has little domestic utilisation.

Moreover, if the miners agree to sell the ore at earlier prices, it is unlikely that steel makers would pay a higher price for it. Anticipating the impact and fallout of that, both mining and steel companies have resorted to frantic lobbying.

The mining association has taken up the matter with the finance minister on a war footing.

The Eastern Zone Mining Association has written to Chidambaram saying that duty be levied only on lumps and not fines. Bipin Kumar Vohra of the association said, in the eastern cost, iron ore fines was the single largest export cargo accounting for more than 70 per cent of the total export earnings.

Haldia, Paradip and Vizag ports handle around 40 million tonne of iron ore fines with dedicated berths for iron ore fines handling. "Five new berths are being developed for Rs 1,000 crore for dedicated iron ore fines loading activities," said Vohra.

Indian Steel Alliance, the apex body for steel producers, feel that just levying duty is not enough and is planning to approach the Group of Ministers looking into the recommendations of the Hoda committee on the National Mineral Policy.

While miners are right in saying that domestic utilisation for fines is low, steelmakers point out that in recent times, the companies had resorted to using fines for their projects since allocation of captive iron ore mines was virtually impossible.

"The Hoda committee had recommended cap at 100 million tonne in 2020 and we have already crossed 100 million tonne," said an ISA member.

Iron ore prices, which were in range of $51-$57 per tonne on spot basis last year had increased by $9-10 per tonne in February, after long term prices were finalised. The spot prices were now ruling at $61-$67 per tonne.

"The increase of Rs 400-450 per tonne prices in the spot market is going to swell the profitability of companies and the export duty of Rs 300 per will have no impact on their bottom line," said the ISA source.

The main bone of contention with steel companies was that iron ore exports had reduced domestic availability and, thereby, putting pressure on prices.The long-term iron ore prices had seen an increase of 71 per cent in 2005-06, 19.5 per cent in 2006-07 and 9.5 per cent in 2007-08.

Ishita Ayan Dutt & Kausik Datta in Kolkata/Mumbai
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