The debate as to whether India on course to become the world’s second largest steel producer should be exporting iron ore at all is no longer on centre stage since the contending parties have stated their positions ad infinitum. Interestingly, within the government itself which is the final arbiter on the subject, there is more than one opinion.
Whatever that may be, the announcement by the Chinese general administration of customs that the country’s iron ore imports from India in October took a 44% YoY dip must have gladdened our steelmakers. India’s share of iron ore imports by China is down from nearly 20% in May to 6.4% in October when it received 45.7 million tonnes of foreign ore, down 6.9 million tonnes over the previous month.
Decline in India’s export of this steel making mineral to China is not because of any conscious policy move. This is fallout of the Karnataka government first putting a ban in July end on export of iron ore from ports in the state and then stopping the movement of the mineral outside the state altogether if consignments are meant for exports. While the provocation for the state government to take this extreme step was the existence of some large scale illegal mining and liberties taken by offspring of powerful politicians, the iron ore industry per se is required to pay for the sins of delinquents.
Nearly a quarter of ore for our exports originates in Karnataka. It is to be assumed that most exporters go by the rule book. They are now stuck with large volumes of the mineral mined for export ahead of the government fiat banning shipments. Denial of any relief has now led a leading mining group to challenge the state’s ore export banning decision in the Supreme Court which has asked the government to state why the appeal must not be admitted. Some others are also planning to move the court.
Observers will recall that over the last few years, China was actively engaging Indian exporters to step up supply of iron ore in a move to reduce its dependence on BHP, Rio, Vale and Fortescue. India, the world’s third largest exporter of ore, sold nearly 118 million tonnes last year in the world market after fully meeting the requirements of domestic steel industry and leaving large volumes of the mineral at mine sites. Importantly, China alone is the destination for nearly 90% of our ore exports. If supply from India starts drying up then that only creates openings for other ore exporting nations. The space in China so far vacated by us has been filled largely by Iran, Ukraine and Russia.
An ANZ report sees in limited Indian supplies resulting from the Karnataka ban a reason for ore prices to remain firm. It said that the Indian export shrink happens coinciding with “iron ore regaining its premium commodity status, rebounding strongly over the past couple of months as confidence returns to the Chinese steel market.”
The Steel Index ore benchmark price linked to 62% iron content is remaining close to its six and a half month high of USD 167 a tonne. According to the report, prices at the current level, will also be supported by stocks build up once again at Chinese ports and the onset of winter putting a brake on local ore extraction in China.
For reasons beyond their control, Indian ore exporters are not able to take full advantage of the Chinese offer of USD 172 a tonne CNF price for the 63.5% iron in ore fines. Disappointed by the action of Karnataka government, mines minister Mr BK Handique had to say in the last session of parliament that he was not going to stop ore exports just because illegal mining could not be curbed at the state level. Whatever is happening in Karnataka cannot but chip away China’s faith in us as a reliable supplier of ore. But China also did upset us when earlier this year it decided to disallow imports of low quality ore, mainly originating in Goa.
Whether or not ore is available in required quantities from India, China will need supplies to satisfy its ravenous requirements. No doubt China is becoming increasingly sceptical about India becoming a significant supply source once again. A reading of the following observation by Beijing-based Lange Steel Information Research Centre will show how the Chinese mind is working. “India as an emerging country with strong economic growth will require adequate ore for its steelmakers. So it will gradually reduce exports of that key steelmaking material.”
China which is lifting steel output this year by over eight per cent to 624 million tonnes and then by another up to 50 million tonnes in 2011 is not missing the Indian message. Chinese ore imports in 2011 forecast to rise 8% to 10% over the likely 600 million tonnes this year have led the country to take steps to compensate for any loss in Indian supply. As China is stepping up domestic ore production, it is building new import sources.