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PrintCalcutta, Nov. 6: International benchmark prices of iron ore are set to dip 10-25 per cent next year as demand slackens on the back of widespread production cuts by steel makers.
Contract prices reached record levels earlier this year, with big miners — Rio Tinto, Vale and BHP Billiton — extracting a 65-96 per cent increase in prices from steel makers in China, Japan and Korea. Contract prices are fixed prices valid for a year.
However, the ongoing financial crisis has led to a crash in demand leading to a free fall in spot prices.
According to Ravi Kastia, managing director of Essel Mining & Industries Ltd, spot prices usually exceed contract prices by 5 per cent.
Now, because of the price crash, spot prices are 30 per cent lower than contract prices.
Kastia said benchmark prices could come down 10-25 per cent next year, though much will depend on the decisions of the top three mining firms — BHP, Rio and Anglo American. Essel, an AV Birla Group company, exports half of its production of 8 million tonnes (mt).
P.K. Mukherjee, managing director of Sesa Goa Ltd, the largest private exporter, also saw difficulties ahead.
“The (price) vector was clearly down but one cannot say what prices will be. It’s impossible to hazard a guess,” he said.
Mukherjee said the price of a type of iron ore fines which was selling at $150 a tonne a couple of months back was now available for $50 a tonne in the spot market.
The price of another grade of fines had slumped to $30 per tonne from $90.
Shrinivas V. Dempo, chairman and managing director of VS Dempo & Co Pvt Ltd and the chairman of CII’s national committee on mining, said the long-term buyers of iron ore were not picking up the contracted quantity.
Dempo exports 4.5 mt iron ore from Goa. About 60 per cent is on long-term contracts with companies such as Japan’s Nippon Steel.
“The volume is low. But they have not asked for a reduction in prices,” he said.
The company has decided to defer the expansion of its mining capacity to 5 mt this year. It has also put on hold the acquisition of new mines overseas.
Mukherjee, however, said Sesa was going ahead with its expansion plans and would grow 25-30 per cent in volume by the end of March.
Sesa produced 12 mt of iron ore last year. The company is investing Rs 150-200 crore in increasing volumes and building infrastructure.
Iron ore export was down 44 per cent in September but Kastia said, the demand was reviving. The inventory of Chinese firms was coming down. “It should revive in 3-4 weeks,” he said.
The meltdown in prices, at the same time, has opened up opportunities for Indian companies to acquire mines abroad at realistic values.
Kastia said Essel was open to investing $1 billion in an overseas acquisition. “Prices have come down substantially. We are watching closely and will start actively looking for it (acquisition) in a few months,” he said.
Editor: Ivy
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