A recent crackdown by the Orissa government on illegal iron ore mining and trade has created a shortage of the benchmark variety, say companies in the trade.
The price of the benchmark 63.5 per cent iron content variety, currently at $157 a tonne at Chinese ports (when exported there) is projected to hit $170 a tonne next month. India exports 100 million tonnes iron ore annually.
The increase is on top of a rise of about 30 per cent till date this year, on revival of steel demand from developed countries, besides new demand from China, India and other growing Asian economies. It has also meant a scarcity of the substitute for ore, shredded scrap.
“It is just a supply-demand arithmetic, where if demand goes up and if, by any means supply gets restricted, prices shoot up,” said Rahul N Baldota, executive director of MSPL Ltd, one of the largest independent iron ore miners in the country, in a reference to the crackdown’s effects. He did not specify the quantum of jump he was expecting in ore prices.
The Orissa action, in coordination with the central government, was on ore traders who used to procure raw material from various sources, including unlicensed miners, and sell to steel producers across the country. As a consequence, smaller players in the state were being hit.
This created a problem of availability of lumps (ore of 63.5 per cent and above iron content) in the state, said R K Sharma, secretary-general of the Federation of Indian Mineral Industries.
He has another worry. The Union steel ministry has renewed demand for raising the export duty on iron ore from 5 per cent to 20 per cent. The demand had been earlier rejected by commerce and finance ministries.
The steel ministry wishes to restrict iron ore exports to ensure raw material availability at home and to spur more value addition here. However, the finance ministry said the time was not opportune for the move. Even so, the steel ministry has renewed the proposal.
Sharma says the proposed move will make ore exports unviable. “Miners will be left with no option but to close their businesses,” he said.
Vimal Kumar Somani, head of Mumbai-based Topworth Group, an integrated steel producer whose activities range from ore mining to billet production, said he also expected ore prices to rise by about 10 per cent from April.
He attributed the shortage of shredded scrap to closure of about 100 mega scrap collection centres across the globe, due to environmental concerns. India was, till recently, importing from these centres cheap raw material for steelmaking.
Vale SA, the world’s largest ore producer, and BHP Billiton, recently ended a 40-year system of setting annual prices by signing short-term contracts with Asian mills.
Sumitomo Metal Industries Co., Japan’s third-biggest steelmaker, agreed to pay Vale $100 to $110 a tonne for the quarter starting April 1. Indian miners say they hope to follow similar pricing in new contracts due after April 1.
