Rio eyes new market with first iron ore sale to India

Rio eyes new market with first iron ore sale to India

Sydney: Rio Tinto Ltd/Plc has made its first sale of iron ore from its mines in Australia to India, potentially opening doors in a major exporter of the steel-making raw material that is busy ramping up its steel capacity.

The sale of 160,000 tonnes to Essar Steel, while small, is unusual as India very rarely imports iron ore, with Indian traders saying the timing could be linked to problems with output in the country’s top iron ore producing state of Orissa.

“This is a landmark development both for Rio and India even though it’s for only a small amount of iron ore," said DJ Carmichael analyst James Wilson.

“If the 160,000 tonnes turns into 3 million tonnes, then goes up from there, Rio’s got a strong foothold in a market that will eventually need to import more raw materials to support its growth, not unlike China."

Essar said the iron ore was needed as the company expands its steel capacity to 10 million tonnes from 4.6 million tonnes, but a spokesman but did not say if the firm would be importing more in the near future.

The bulk of Australian iron ore traditionally goes to steel markets in Japan, South Korea, Taiwan and increasingly China, which represents the greatest growth market for Rio.

“This is only one shipment at this stage, but this is very significant in terms of forging a relationship with Essar," Rio’s iron ore division chief, Sam Walsh, said in a statement.

“We have long believed that India is a long-term market of great potential, and this development should be seen in that context," he said.

Rio will initially sell Essar Steel Ltd 160,000 tonnes of Pilbara Blend fines later this month but Essar could be in the market for up to 3 million tonnes of ore, according to a Rio spokesman, adding that the sale had been done on a spot basis.

The sale also could precede domestic shipments of iron ore in India by Rio from the as-yet undeveloped Orissa project in eastern India, Walsh said.

Rio has described Orissa as one of the world’s key iron ore discoveries.

India’s need for iron ore should grow as its steel capacity expands to meet growth in infrastructure and consumer goods sales.

Government policy calls for India to produce over 100 million tonnes of steel a year by 2019/20. In 2008/09, the country produced 56.39 million tonnes, up slightly from the previous year.

Short-term Problems

However, an Indian iron ore dealer and a metals analyst said the imports could be temporary to tide over a supply shortage. “The scope for imports is good, but it is not as if we will turn into a net importer overnight," said a dealer in a large international trading company in New Delhi.

India, the world’s third biggest producer of iron ore, is seeing a severe shortage of supplies from the eastern state of Orissa where the government has been taking action against illegal mining.

In 2008/09, Orissa produced 70 million tonnes of iron ore out of 222 million tonnes of the nation’s total production.

“This should be temporary. India has enough iron ore reserves," said Pawan Burde, vice president of research at PINC Research in Mumbai.

Rio is in a development joint venture with India’s state-owned Orissa Mining Corp, which holds rights to mining leases in Orissa.