Monsoon to hit iron ore supply

Monsoon to hit iron ore supply

New Delhi: India’s annual monsoon is expected to hit iron ore exports sharply, worsening an already tight supply, an India-based executive at China’s state-run trader Sinosteel said on Monday.

“We have been seeing a shortage. Overall, you will see that the volume from India will be coming down," said Satyajit Singh, director of marketing of Sinosteel India, one of the biggest buyers of iron ore in India.

“It could be a significant double-digit fall," he said.

Despite the supply crunch, Sinosteel hopes to maintain its purchases from India at last year’s level of 14 million tonnes, Singh said, but did not elaborate.

A dealer in a large international trading agency said Sinosteel’s buying in the market was consistent owing to China’s ravenous appetite for iron ore, as opposed to other traders who curtailed purchases when markets rallied.

“But we expect Sinosteel to buy aggressively once the uncertainty about China’s contract talks are clearer," the dealer added, referring to the country’s annual talks with miners to secure ore supply, that this year is said to have given way to a shorter duration system.

Every year exporters rush out cargoes ahead of the monsoon, but this year, a shortage in supplies in east and south India has prevented much cargo from being exported to China that houses the world’s largest steel industry.

The shortage has pushed prices to $180-$182 a tonne C&F, a level last seen in August 2008, and the market is eyeing a rise to $200 soon.

The June-September monsoon rains, which are slated to be normal this year, usually shut down exports of iron ore fines as it absorbs water and slows down the movement of iron ore lumps owing to road and rail disruptions.

Singh said he saw prices continuing to stay strong, and falls if any, to be supported by a recovering steel market.

“If the monsoon prolongs this year also, supplies will be hit further," he said, referring to rains in 2009 that was the worst in nearly four decades, but revived late and stretched beyond September.

An action on illegal mines in Orissa that started in July was aggravated by transport restrictions imposed last month. And in Karnataka in the south, transport curbs lessened stocks available for exports.

To add to the blow, earlier this month, China curbed imports of ores with less than 60 percent iron by traders.

In 2009, the company bought more than 14 million tonnes of iron ore of all grades and “this year, we will try at least to match this. It all depends on how things go on," Singh said.

The company is interested in mining in India, but has no concrete plans for now and has not applied for leases, deterred by long periods it takes for projects to bear fruit, he said.

“That’s a long term strategy," he said.