India eyeing long-term iron ore deal with China
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India eyeing long-term iron ore deal with China

It would be a hard sell after China turned down a 24 per cent price increase by a Brazilian supplier.

india Updated: Apr 04, 2006 16:00 IST

Indian miners will explore long-term contracts next week to supply iron ore to Chinese steel mills, the world's main buyers, an industry official said on Tuesday.

But it would be a hard sell after China turned down a 24 per cent price increase by a Brazilian supplier.

India, the world's third-largest iron ore exporter, is estimated to have sold 68.5 million tonnes to China in the financial year that ended on March 31, but nearly all of that were on spot basis.

"I have been talking to our industry that spot sale is not the solution in our long-term interest," RK Sharma, secretary general of the Federation of Indian Mineral Industries, said in a telephonic interview from New Delhi.

"We should go for long-term contracts directly between Indian mines and Chinese steel mills," he said.

Sharma said long-term arrangements would be explored during a conference on iron ore jointly being held by Indian and Chinese industry in China's Qingdao during April 13-14.

India, which exported about 85 million tonnes of iron ore in 2005/06, has long-term deals with Japan.

But sales to China, which emerged as the leading buyer only in the last three years, have eluded a long-term deal because of differences on pricing.

Exports on spot basis usually fetch 15-20 per cent more than long-term contracts, but they run the risk of fluctuating demand.

Indian mines could become marginalised in coming years if leading producers Australia and Brazil stepped up supplies under long-term contracts, Sharma said.

"It is in the interest of Indian mines and Chinese steel mills to enter into long-term contracts," he said.

Another official earlier said India was anticipating at least a 10 per cent increase in prices this financial year over last year's spot level of $58 to $60 a tonne.

Hard Sell

Chinese steel mills are unlikely to come to a quick agreement on 2006 iron ore prices, after their rejection last week of a 24 per cent price increase sought by Brazil's CVRD, the world's top iron ore supplier.

It was not clear when the Chinese and the top three miners -- CVRD, or Companhia Vale do Rio Doce, BHP Billiton Ltd/Plc would meet again.

Indian miners fix the price for iron ore exports based on those agreed by the big three miners.

The Chinese steel industry is holding out for as small a rise as possible, after a 71.5 per cent increase last year, leaving any settlement still far in the future, industry officials in China said.

India's iron ore reserves are estimated at 24 billion tonnes, with a major portion having rich iron content of about 65 per cent, government data showed.

The federal government has been under pressure from Indian steel makers to curb iron ore exports to preserve reserves for domestic consumption.

Last week, the government lowered the ceiling on iron ore exports from a key mine run by state-owned National Mineral Development Corporation.

The ceiling on lump ore exports from Bailadila mines in central India was cut to 2.7 million tonnes annually from 3 million, while the cap for fine iron ore was slashed to 1.81 million tonnes from 3.8 million.

Sharma said the move was unlikely to affect exports to China as supplies were mainly from other mines on the country's eastern region.

First Published: Apr 04, 2006 16:00 IST