Local ore users see fall in prices

June 16, 2008

June 15th (Calcutta Telegraph) – Iron ore prices may fall by Rs 500 per tonne in the domestic market following the imposition of a 15 per cent duty on export.

The duty, even though intended as a means of generating revenue for the Union government, is expected to increase domestic supply. This in turn is expected to reduce ore prices.

“Miners will now weigh options whether to export or sell in the domestic market. If the local sale gets more remunerative, the impetus to export will come down,” a top mining company executive said.

Local prices of fines in the spot market are hovering at $150, or about Rs 6,000 a tonne. The duty is expected to impact only the spot prices since long-term contracts are usually made at a discount. In India, all private mining companies sell on the basis of spot prices.

While the imposition of a 15 per cent ad valorem export duty met the long standing demand of integrated steel players for a measure to conserve natural resources, it might not lead to a significant reduction in the cost of raw material for steel companies.

About 85 per cent of the fines is exported because domestic industry does not use it. Hence, there would hardly be any perceptible change in the input cost structure of domestic steel companies in case fine prices fall.

Some steel makers believe that even fine prices may not come down. “Look at the earnings before interest, taxes, depreciation and amortisation margins of mining companies. They can absorb the export duty themselves without passing it on to the buyers,” a steel company official said.

Steel makers, thus, rule out any further reduction in steel prices. The top five companies in the country have said they would hold on to prices till July to support the government’s effort to contain inflation.

NMDC impact

India’s biggest iron ore miner NMDC said it would pass on the duty impact to overseas buyers. “Our company will be largely unaffected by the imposition of the export duty,” Rana Som, chairman and managing director of NMDC, told The Telegraph.

He said the company exported to Japan and other countries on long-term basis where the prices were lower than the spot market rates.

The company is currently negotiating with Japan Steel Mills to fix the price for this year’s contract.

Brazil’s Vale has approved a 65 per cent increase in prices. But BHP Billiton and Rio Tinto have asked for even more taking into account freight charges.

Som indicated that NMDC would veer towards BHP and Rio rather than Vale.

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