Indian spot iron ore export prices, which have plummeted in the last 3 to 4 months, may rebound following long-term price agreements between Rio Tinto Ltd. and Japanese and South Korean steel mills, industry officials said.
Anglo-Australian miner Rio Tinto decision to cut 2009-10 iron ore prices for Nippon Steel Corp and Posco by 33%-44% leaves "headroom" for some spot price increases for Indian iron ore, they said.
However, Indian miners are watching if Chinese steel mills' demand for even deeper cuts of more than 40% comes through. China is the biggest importer of iron ore in the world and the single-largest export market for Indian ore.
India, the world's third-largest iron ore exporter, shipped close to 100 million metric tons of iron ore in 2008-09, most of it to China.
Indian spot prices generally take cues from long-term annual contract prices agreed to by Chinese and Japanese buyers.
"The gap between spot prices and long-term contract prices will narrow and spot prices may overtake long-term prices," S.V. Salgaoncar, managing director of Goa-based miner V.M. Salgaoncar & Brothers, told Dow Jones Newswires.
Indian spot prices are about $54-$55/ton, free on board while newly agreed contract prices are around $58/ton for fines and $69/ton for lumps.
Spot iron ore prices slipped below long-term prices in late 2008 after several years as demand from China, the biggest consumer, crashed.
"Mathematically, there is headroom for an increase in the spot price of Indian iron ore," Rahul Baldota, president of the Federation of Indian Mineral Industries, said after the Rio Tinto-Nippon Steel price agreement.
"Rio Tinto and BHP are reportedly selling almost everything on a spot basis, which is significantly above the quotes for India-China supplies," said BMO Capital Markets, a U.S.-based financial services company, in a recent research report.
Indian iron ore is generally perceived to be of lower quality, justifying a slight discount in pries.
But the drop in prices of Indian ore is forcing companies and traders to operate on wafer-thin margins, industry officials said.
"If prices remain low, production will come down," said Glenn Kalvampara, secretary of Goa Mineral Ore Exporter's Association.
Meanwhile, a strengthening India rupee after the new government took over, is also causing concern.
The rupee, which was trading at 49.43 to the dollar before election results were announced May 16, rose to 46.98 last week before giving up some of the gains to trade around 47.67 to a dollar Thursday.
"The appreciation of the Indian rupee is a matter of concern," said Somshri Patnaik, a partner at Orissa-based iron ore supplier PM Minerals.
While the demand for low grade India iron ore is still strong, some industry officials said overall shipments could drop by as much as 30% in the 2009-10 financial year because of higher freight costs that have made Indian exports less competitive.
India, which is the largest iron ore seller in the Chinese cash market, has been hurt by price declines in the past few months, and a large number of miners have turned unprofitable, said a report by BMO Capital Markets.
The only silver lining has been a sustained iron ore demand from small Chinese steel mills and a spike in Chinese imports in April to a record 57 million tons, up 33% higher on year.
"Demand will be better than last year," Mr. Salgaoncar said, adding low-cost small steel mills in China have propped up ore demand in the spot market.
Anglo-Australian miner Rio Tinto decision to cut 2009-10 iron ore prices for Nippon Steel Corp and Posco by 33%-44% leaves "headroom" for some spot price increases for Indian iron ore, they said.
However, Indian miners are watching if Chinese steel mills' demand for even deeper cuts of more than 40% comes through. China is the biggest importer of iron ore in the world and the single-largest export market for Indian ore.
India, the world's third-largest iron ore exporter, shipped close to 100 million metric tons of iron ore in 2008-09, most of it to China.
Indian spot prices generally take cues from long-term annual contract prices agreed to by Chinese and Japanese buyers.
"The gap between spot prices and long-term contract prices will narrow and spot prices may overtake long-term prices," S.V. Salgaoncar, managing director of Goa-based miner V.M. Salgaoncar & Brothers, told Dow Jones Newswires.
Indian spot prices are about $54-$55/ton, free on board while newly agreed contract prices are around $58/ton for fines and $69/ton for lumps.
Spot iron ore prices slipped below long-term prices in late 2008 after several years as demand from China, the biggest consumer, crashed.
"Mathematically, there is headroom for an increase in the spot price of Indian iron ore," Rahul Baldota, president of the Federation of Indian Mineral Industries, said after the Rio Tinto-Nippon Steel price agreement.
"Rio Tinto and BHP are reportedly selling almost everything on a spot basis, which is significantly above the quotes for India-China supplies," said BMO Capital Markets, a U.S.-based financial services company, in a recent research report.
Indian iron ore is generally perceived to be of lower quality, justifying a slight discount in pries.
But the drop in prices of Indian ore is forcing companies and traders to operate on wafer-thin margins, industry officials said.
"If prices remain low, production will come down," said Glenn Kalvampara, secretary of Goa Mineral Ore Exporter's Association.
Meanwhile, a strengthening India rupee after the new government took over, is also causing concern.
The rupee, which was trading at 49.43 to the dollar before election results were announced May 16, rose to 46.98 last week before giving up some of the gains to trade around 47.67 to a dollar Thursday.
"The appreciation of the Indian rupee is a matter of concern," said Somshri Patnaik, a partner at Orissa-based iron ore supplier PM Minerals.
While the demand for low grade India iron ore is still strong, some industry officials said overall shipments could drop by as much as 30% in the 2009-10 financial year because of higher freight costs that have made Indian exports less competitive.
India, which is the largest iron ore seller in the Chinese cash market, has been hurt by price declines in the past few months, and a large number of miners have turned unprofitable, said a report by BMO Capital Markets.
The only silver lining has been a sustained iron ore demand from small Chinese steel mills and a spike in Chinese imports in April to a record 57 million tons, up 33% higher on year.
"Demand will be better than last year," Mr. Salgaoncar said, adding low-cost small steel mills in China have propped up ore demand in the spot market.
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