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Business News/ Opinion / Online-views/  Rio-Baosteel deal may hit India iron ore sales
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Rio-Baosteel deal may hit India iron ore sales

Rio-Baosteel deal may hit India iron ore sales

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Mumbai: India’s iron ore exports are set to fall sharply with Chinese steel firms likely to raise term supplies from Australia following a price settlement, Indian trade officials said on Tuesday.

Indian exports, already highly taxed, would be hit after China’s Baosteel agreed to pay 96.5% more to Australian miner Rio Tinto, said R.K. Sharma, secretary general, Federation of Indian Mineral Industries.

BHP Billiton has not yet agreed to a new price to renew Asian contracts. The miner raised estimated reserves at its biggest iron ore operation by a quarter a day after Rio Tinto set the new benchmark.

“After Australian companies have got the price hike they wanted, they can bring any quantity now," Sharma said.

The landed cost of Indian iron ore was $155-$160 per tonne in China, $35 per tonne more than Australian ore even after the hike, said Rahul Baldota, the president of the association.

India exported 93 million tonnes of ore in 2006-07, mostly to China, according to the latest data, and trade officials say the country was making up a shortfall in Australian supplies.

“We will have to wait and see how it works out. I think, as and when there is a shortfall in supplies to China, then they (Chinese mills) will opt for Indian ore." Sharma said.

China’s demand for ore has been rising sharply as it seeks to add almost half of new steel-making capacity additions globally between 2007-2010, the Organisation for Economic Co-operation and Development (OECD) said.

Trade officials say Indian exporters have enjoyed the benefits of a higher price in the spot market compared with term-contract prices, but even this was changing.

“The differential in spot and long-term contract prices have been narrowing over the last two years and maybe in the next year or so it should balance out," said Baldota, who is also a director in unlisted miner MSPL Ltd.

The iron ore spot price in China was about 70-80% higher than term-contract prices, a trade official said.

Even the landed cost of Brazilian ore is cheaper by about $5 a tonne compared to Indian ore, he said.

Earlier this month, the Indian government imposed a uniform 15% duty on iron ore exports, replacing a fixed levy of Rs300 ($7) per tonne on medium-grade ore and Rs50 on lower grade.

“The credibility of Indian ore supplies has gone down because of freight cost, export duty and tinkering of policies by the Indian government," Swaminathan Sridhar, executive director of Goa Mineral Ore Exporters’ Association, said.

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Published: 24 Jun 2008, 05:18 PM IST
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