The Hindu Business Line : NMDC may hike long term iron ore contract prices

What’s in store
NMDC is likely to decide the on the quantum of hike based on how Rio and BHP conclude their deals.
The prices may go up by a minimum of 65% for lump and 88% on fines.

Suresh P. Iyengar

Mumbai, June 12 With the global mining majors such as Rio Tinto, BHP and Vale (previously Companhia Vale do Rio Doce) finalising their annual contract for supplying iron ore at a higher price, there is an apprehension among steel companies in India that National Mineral Development Corporation (NMDC) may also mark up its annual contract pricing.

Benchmark

NMDC had announced that it will benchmark long term iron ore contract prices for financial year 2008-09 on the basis of hikes agreed to by Japan Steel Mills (JSM).

In a letter to steel companies, NMDC said JSM had not finalised the percentage increase in the prices for the year 2008-09 in respect to NMDC ore. The company benchmarks domestic prices to JSM as they are the major international buyers.

However, JSM members such as JFE Holdings, Nippon Steel as well as Korea’s Posco, had, in February, agreed to pay 65 per cent more to world’s largest iron ore exporter Brazil’s Vale for 2008-09.

50% hike

“Though presently we are paying old rates to NMDC, the prices will definitely go up by a minimum of 65 per cent for lump and 88 per cent on fines. The price hike will be effective retrospective from April 1, 2008,” said a steel company official.

In October last year, NMDC had increased prices by 50 per cent. Recently, the Government has asked NMDC to hold on to the price line at the current level for three months after steel companies agreed to do the same. JSW and Visa Steel are among the steel companies that source part of their iron ore requirement from NMDC on annual contractual basis.

Of the total production of 30 million tonnes of iron ore from Bailadila mines in Chhattisgarh and Donimalai in Karnataka, NMDC exports about 3 million tonnes to the Japanese mills and 4 lakh tonnes to Posco, and sells the balance in the domestic market. NMDC accounts for 15 per cent of the country’s total iron ore production.

Deadline

NMDC is likely to decide the on the quantum of price hike of the long term contract once Rio and BHP conclude their deal.

The deadline for negotiation between China and Australian miners has been reported at June 30, 2008. If Baosteel and other larger steel mills in China accept the price hike of about 95 per cent to 85 per cent, Indian iron ore producer NMDC may follow the suit, he said.

Rio Tinto recently secured a record hike of 95 per cent on iron ore supplies to a few small Chinese companies; however, larger mills like Baosteel have negotiated a better deal.

Ocean freight charges

Traditionally, one of the top three iron ore miners (Vale, Rio or BHP) would conclude the negotiations for annual pricing of iron ore, the other two firms would also agree for similar hikes. Similarly, all the steel companies also agree to the same terms and conditions. However, the recent spurt in ocean freight has led Rio and BHP to call for a differential contractual price for iron ore based on the location of shipment.

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