China eyeing long-term iron ore deals with India

Aims to offset soaring prices caused by high freight rates

China has expressed its keenness to enter into long-term iron ore contracts with Indian suppliers in a bid to offset soaring prices of the mineral caused by rising ocean freight and surging oil prices.

"Beijing will make efforts to establish long-term iron ore supply contracts with Indian suppliers in a bid to restrict soaring iron ore prices," the Metal Bulletin (MB) reported quoting China Iron and Steel Association (CISA) Secretary General Luo Bingsheng.

The immediate factor pushing up iron ore import rates was the abnormal hike in ocean freight caused by surging oil prices and US dollar depreciation, he said, and pointed out, "Indian iron ore has led the way in the round of price rises."

"We should introduce long-term contracts for the importers (of Indian ore) as well as enhance the threshold for qualified importers," Bingsheng said.

The price (including insurance and freight costs) of iron ore being shipped from India more than doubled to $135.19 a tonne in October, compared with $66.86 a tonne seen in January this year. "The price has since touched $200 a tonne before slipping back to $180-185," the Bulletin said.

The Chinese government is considering changing the way iron ore is imported in an effort to squeeze ore imports from India.

Besides, Chinese steel mills will also be encouraged to strengthen investments in overseas mines and asked to increase the ratio of ore supplied from joint venture operations outside China to about 60 per cent in the future, he said.

Indian iron ore suppliers peg their prices according to the spot ocean freight from Brazil to China besides the $7.12 a tonne export duty imposed by the government from March 1 this year, MB said.

The ocean freight on spot iron ore trading from Brazil to China has surged to $96 a tonne in October, which has increased the cost for Chinese steelmakers substantially and undermined the stability of the development of mining industries, Bingsheng said.

He predicted that Chinese run-of-mine iron ore production would be around 800 million tonnes this year, up 15.9 per cent from 2006, and will increase by about 80 million tonnes next year.

"Moreover, Chinese iron ore imports are expected to increase by around 40 million tonnes to 415 million tonnes in 2008, up 11 per cent, from the estimated 375 million tonnes for this year," it added.

Meanwhile, the impending new mineral policy is unlikely to address the contentious issue of ore exports as the ministry of mines has put the onus of deciding the same on finance and commerce ministries.

The chief ministers of mineral-rich states such as Jharkhand, Orissa and Chhattisgarh, in a joint memorandum to Prime Minister Manmohan Singh, have demanded capping exports of the mineral and insisted on value-addition within their respective territorial limits.

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PRICE CONTROL

The import price of Indian iron ore hit a high of $200 a tonne this year

Indian iron ore suppliers peg their prices according to the spot freight rate from Brazil to China

The ocean freight on spot iron ore trading from Brazil to China has surged to $96 a tonne in October

China's ore imports are expected to increase by around 40 million tonnes to 415 million tonnes in 2008