• Investment World
• eWorld
• Brand Line
• Mentor
• Life
• Brand Quest
• The New Manager
• Smartbuy

Stocks

• Quotes
• SE Diary
• Scoreboard
• Open-End Mutual Fund

Cross Currency

• Rates
  
  

Shipping

• Ports
  
  

Archives

• Yesterday
• Datewise
• Resources
• In Focus
• In Depth
• Events 2007

Group Sites

• The Hindu
• The Hindu ePaper
• Business Line
• Business Line ePaper
• Sportstar
• Frontline
• The Hindu eBooks
• The Hindu Images

M.R. Subramani

Perth, May 22

Indian iron ore companies are likely to gain by selling iron ore in the spot market from an ongoing spat between the Australian metals major Rio Tinto and Chinese Steel companies over pricing and deliveries.

“I think Indian companies will gain,” said Mr Russell Scrimshaw, Executive Director of Fortescue Metals Group Ltd.

Rio Tinto officials, too, conceded that Indian ore companies were likely to gain, while another ore major BHP Billiton’s President, Mr Ian Ashby, said he would not want to comment on the issue.

The controversy has been triggered by a decree from the China Iron and Steel Association (CISA) to its member mills to boycott purchase of Rio Tinto iron ores from the spot market. CISA’s charge against the Australian firm is that it is failing to honour its delivery commitment and taking advantage of the high spot market prices.

Iron ore companies usually enter into a long-term agreement with steel companies. The rates are usually fixed on a benchmark price every year. For 2008-09 (April-March), no agreement has been reached between the Chinese and Australian firms.

The problem is that Chinese firms have agreed to increase the prices for iron ores from Brazil by 65-71 per cent depending on quality. On the other hand, Australian firms have said that they expect a minimum hike of 71 per cent plus a share of the freight charges the Chinese companies save by buying from them.

Currently, freight charges from Brazil are around $100 a tonne, whereas from Australia they are $35 a tonne.

“I think we are justified in seeking a premium. We are not asking for the entire share of what they are saving from the freight charges,” said a Rio Tinto official.

“Last year, we raised the iron ore prices by 8.5 per cent only. That is less than the mining inflation we have witnessed,” said Mr Gervase Greene, Manager, Media and Communcations, Rio Tinto.

“We are in fact surprised by the development,” he told a group of Indian journalists on a Australian Department of Foreign Affairs and Trade-sponsored visit.

Chinese aluminium major Chinalco holds nine per cent of the stakes in Rio Tinto iron ore. On the other hand, Rio Tinto plans to triple its spot sales to 15 million tonnes (mt). That is less than 10 per cent of the 160 mt it exported in 2007.

However, long-term contracted prices of iron ore are seen at below $100 a tonne, whereas spot prices are currently hovering around $220 a tonne.

China imports nearly 500 mt of iron ore every year with shipments into that country hitting a record 42 million tonnes in April. Most of Indian iron ore exports are through spot sales and it sells around 70 mt to China alone. Despite its best efforts to peg back iron ore exports by imposing a Rs 300 a tonne levy, the Centre has not been successful in holding back the shipments and they are expected to exceed last year’s levels.

Earlier this week, shipping rates increased 10 per cent. The price for hiring a cape size vessel from Brazil to China is $210,000 a day and indications are that it could soon touch $2,50,000.

“The Indian companies definitely stand to gain from the current situation. The higher freight charges also put them in an advantage,” said an analyst.

But the higher freight charges are also seen as a reason why the Chinese companies may try and reach an agreement on the long-term contracts.

According to media reports, the Chinese are likely to settle for a 85 per cent hike in the prices.

More Stories on : Minerals | Steel | Corporate Disputes

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Reviving Kuttanad: Is there hope in the package?

Copyright © 2008, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line