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Aditi Chandrasekhar

Chennai, Oct. 15 India is likely to see an increase in the number of steel-based sectors (such as automobiles, household appliances) in the coming years. This is because, like most other growing economies, India is transitioning itself into industrialisation. This translates directly into demand for steel-making raw materials such as metallurgical coal and iron ore. Global demand for raw materials is also set to increase, which means trade between countries will depend on each one’s capacity to meet demand.

Despite a rise in consumption, India will see a surge in iron ore exports. Indian exports will increase by 8.5 per cent to 102 million tonnes (mt) in 2008, according to estimates by Abare, Australia’s independent government economic research agency. This substantial rise could be partly attributed to domestic producers looking to cash in on the high spot prices in China. However, export costs are forecast to be higher compared with Australia and Brazil due to a combination of export taxes and infrastructural bottlenecks in India.

By 2009, with the increased global availability of iron ore, spot prices will decrease and exports of the high-cost Indian iron ore will also most likely decline. In addition to this, strong domestic demand will push the Indian Government to go in for restrictive measures on the movement of iron ore, which would further reduce its availability for export. Exports may fall by almost five per cent, registering a total of 97 mt in 2009, according to Abare.

Meanwhile, the expected strong growth in steel production and low quality of domestic metallurgical coal reserves are expected to push its imports up. According to Abare forecasts, metallurgical coal imports in India are to grow at an average of 12 per cent a year in 2008 and 2009.

Global metallurgical coal consumption is to grow at an average of 5.5 per cent a year in both 2008 and 2009, with China and India being the main drivers of growth.

Global coal trade sees an increase of three per cent to 233 mt in 2008, and an additional six per cent in 2009 taking the total coal traded to 248 mt.

Global demand for metallurgical coal is expected to rise strongly in line with the increase in blast furnace output. Contract prices for most types of metallurgical coal have tripled for 2008-09, rising to around $300/tonne for premium hard coking coal. Factors propelling this rise were strong demand for metallurgical coal due to growing steel production and supply difficulties – especially due to congested Australian coal export infrastructure and heavy rainfall in Queensland during the March quarter in 2008. Despite the economic slowdown expected to continue into the beginning of 2009, metallurgical coal prices are expected to remain around current levels in the short term, underpinned by Australian infrastructure bottlenecks, increased export taxes on metallurgical coal and coke in China and strong steel production growth in developing countries.

Meanwhile, on the iron ore front, Abare estimates overall production in 2008 will increase to 1.9 billion tonnes, an almost 13 per cent jump – most of which is to occur in China, Australia and Brazil.

Iron trade between countries is likely to rise by around 11 per cent in 2008 and further by around eight per cent in 2009. Despite the increase in its production, China will require large increases in imports to meet its growing demand. Australia and Brazil see a strong growth in exports.

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