New Delhi: Japan may prefer to get the iron ore it needs for the reconstruction of its quake and tsunami-ravaged northern coast from Australia rather than India owing to the volatility of spot cargoes and low quality, analysts said on Monday.
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India’s exports of iron ore to Japan have been shrinking, and the latest crisis in the country that has taken the death toll to over 10,000 and shut down at least two of its nuclear power plants amid radiation fears is unlikely to see that being restored, analysts and traders said.
“Japan likes long-term contracts. About two to three years ago, it had long-term contracts with India, but those have now ended,” said S.B.S. Chauhan, adviser at the Federation of Indian Mineral Industries (Fimi). “I think they will take ore from Australia.” Chauhan estimated India may have exported about 2 million tonnes (mt) of iron ore last year to Japan. In 2008-09, Japan bought 5.4 mt of iron ore from India, down nearly 30% from 7.7 million tonnes in the previous year, Fimi data showed.
Losing out: An iron ore mine in Orissa. Slower off-take from China, export duty and higher rail freight rates have dampened the market.Adam Ferguson/Bloomberg
Traders in international trading companies and analysts said Japan’s preference for long-term contracts, assurance on quality and bulk shipments, would keep it focused on Australia, which is also geographically closer.
“Japan is a very quality conscious buyer maybe because of the kind of steel they produce,” said an analyst in a research house, declining to be named. “They would prefer to buy iron ore from large mining companies who would assure them quality and bulk.”
India is the world’s third largest supplier of iron ore that operates on a spot basis and ships half of its over 200 mt of production a year, mainly to China. India’s iron ore market is dotted with small mines with around 250 units in the export market alongside big firms.
This year, slower off-take from China, higher export duty imposed in the budget, an export ban in Karnataka and higher railway freight rates have dampened the market. Between April 2010 and January 2011, India exported only 75.1 mt of iron ore, down 18% from the year-ago period.
Despite expectations of higher demand from Japan, iron ore prices were softer on Monday owing to reports of some shutdowns of Japanese steel mills and a lull in Chinese buying. Indian origin ore with 63.5% iron content was quoted at $170-172 a tonne from about $180 a tonne last week, a trader said.
“It’s all in wait-and-watch (mode) because the disaster is so big,” said Ranjan Chhibba, a trader with Sino Star Minerals Ltd, a Hong Kong-based iron ore and coal trader. “Prices will react in about 15-20 days.”
Japan’s coal demand is also seen rising in the wake of the tsunami as the country would seek to replace power produced by its closed nuclear plants. But Japan also has gas-based capacities to produce power, so demand for coal may not rise much, said a senior Macquarie India analyst.
The higher uptake of coal by Japan could cause prices to rise, which may mean Indian steel firms and power plants having to pay more for imports of the fuel, analysts and traders said.