India’s Superpower Euphoria: Sid Harth
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Iron ore exports seen halved
India’s iron ore exports, which fell for the first time in a decade last year, could halve over the next five years as the country feeds the expansion of its steel industry. Full Article
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Keeping more iron ore at home, India exports seen halved
By Manolo Serapio Jr and Siddesh Mayenkar
SINGAPORE/MUMBAI | Mon Aug 15, 2011 2:40pm IST
(Reuters) – India’s iron ore exports, which fell for the first time in a decade last year, could halve over the next five years as the country feeds the expansion of its steel industry.
Lower shipments from the world’s No. 3 exporter should help bolster prices that have already more than trebled from late 2008, as massive increases in global supply are only expected to come through by 2015 and demand from top consumer China rises.
“Indian exports are in a structural decline as resource nationalism becomes a bigger driver behind policy. The policy is definitely not encouraging exports,” said Graeme Train, commodity analyst at Macquarie in Shanghai.
In a bid to curb overseas sales, India has raised freight rates and quadrupled export taxes on iron ore fines, the sandy material that typically contains 55-65 percent iron and which comprises around 70 percent of its annual output of about 200 million tonnes.
India’s iron ore output and exports, click link.reuters.com/hen23s
Iron ore exports from India fell 17 percent to 97.6 million tonnes in the year to March, largely due to a ban on shipments from the key producing state of Karnataka.
Analysts in a Reuters poll forecast another drop to eight-year lows this year on increased costs and a delay in resumption of shipments from Karnataka, source of around a quarter of India’s exports.
Tight Indian supplies and booming Chinese demand lifted spot iron ore prices to record highs above $190 a tonne in mid-February. They are currently trading near $176.
EXPANDING STEEL SECTOR
The world’s fifth-largest steel producer, India is aiming to lift output to 120 million tonnes by the end of 2012 from nearly 67 million tonnes in 2010, as the likes of steel giants ArcelorMittal and POSCO expand their reach into Asia’s third-largest economy.
India is looking at 8.2 percent growth this fiscal year, after expanding 8.5 percent last year, underscoring the need to boost domestic steel output and consumption of iron ore.
With the expansion in its steel sector, the country’s iron ore exports are forecast to fall to roughly half of the 97.6 million tonnes shipped in the last fiscal year by the year to March 2016, said Gunmeet Singh, analyst for CRU in Mumbai.
India’s traditional steel blast furnaces can use only iron ore lumps, but there is a growing move among steelmakers to invest in more pelletizing and sintering plants that can take the iron ore fines now mostly exported to China.
Singh estimates that the country’s pelletizing capacity will triple to 90 million tonnes in five years and its sintering capacity will increase 55-60 percent from 53 million tonnes.
“In many ways the efforts to prevent exports of iron ore are more to support the domestic steel industry which will benefit from much lower raw material costs,” said Christopher Ellis, analyst with Metal Bulletin.
While land acquisitions remain a big hurdle that could disrupt India’s plans, with protests continuing against POSCO’s planned $12 billion steel mill that was meant to start producing this year, there is a pending bill in parliament aimed at boosting payouts to poor villagers for industrial projects developed on farmland.
MARGIN SQUEEZE, KARNATAKA FREEZE
Apart from imposing higher taxes to stop iron ore exports, India also hiked freight rates twice this year, making carriage costs for exports five times more expensive than those for ore for local consumption.
The increased taxes and tariffs pushed the average cost for Indian iron ore to $100 per tonne, more than double the production cost in Australia and Brazil, said Train.
“That would put Indian material at the top of the cost curve this year. They’re almost better off selling into the domestic market,” said Train.
The higher cost slashed margins of producers, after taking out handling and shipping fees.
“Before the tax hike, miners earned $40 per tonne, but after the tax incursions the margins have diminished to $10-$20,” said Dhruv Goel, managing director at Orissa-based Steel Mint.
“The middle man hardly gets $1 (per tonne).”
Indian exports also suffered from a ban on shipments from the iron-ore rich state of Karnataka, source of around a quarter of the country’s annual exports, from July 2010, as part of the state’s crackdown on illegal mining.
The Supreme Court ordered the ban lifted in April but that order has yet to be carried out with the state government citing procedural delays as it installs monitoring and tracking systems. Political infighting may further progress.
Gavin Montgomery, iron ore analyst at Wood Mackenzie, said he expects Indian shipments to fall to 65 million tonnes by 2015, prompting big suppliers Australia and Brazil to sell more to China and non-traditional exporters to boost shipments.
The burden of producing more to feed China’s demand rests on big suppliers Australia and Brazil.
Brazil’s Vale and Australia’s Rio Tinto and BHP Billiton, which together control around two-thirds of global seaborne supply, are looking to boost their collective output by half to around 1 billion tonnes by 2015.
That will equal China’s import demand by then as high production costs and low-quality iron ore reserves boost its purchases, according to estimates from Wood Mackenzie.
“With iron ore prices staying around $180 a tonne, the supply can come from a lot of different sources. If Indian supply continues to disappoint, we will see continued reliance on both traditional and non-traditional suppliers,” said Montgomery.
($1 = 45.255 rupees)
(Editing by Sugita Katyal)
Iron ore exports seen halved
India’s iron ore exports, which fell for the first time in a decade last year, could halve over the next five years as the country feeds the expansion of its steel industry. Full Article
TIMELINE – India’s moves to curb iron ore exports
NEW DELHI | Mon Aug 15, 2011 2:27pm IST
(Reuters) – India’s iron ore exports, which fell for the first time in a decade last year, could halve over the next five years as the country feeds the expansion of its steel industry.
Karnataka banned iron ore shipments in July 2010 and exports have yet to resume despite a Supreme Court order to lift the ban from April 20.
The central government, keen to clamp down on illegal mining and to ensure domestic steelmakers have enough of the raw material, has raised taxes and transport fees to discourage exports but stopped short of a country-wide ban.
Following is a timeline of key developments in India’s iron ore sector since Karnataka, the country’s second-largest producer, introduced its shipments ban:
July 26, 2010 — Karnataka, ruled by the opposition Bharatiya Janata Party, bans shipments of iron ore. The state government had faced pressure from the ruling Congress-led central government to clamp down on illegal mining. Exporters in the state subsequently challenged the ban.
September — Iron ore exports post their sharpest monthly fall in nearly two years after Karnataka’s ban and slow China demand. Exports drop 47 percent from a year earlier to 3.03 million tonnes.
Nov. 19 — Karnataka’s high court upholds the ban on exports.
Nov. 23 — Iron ore miners in the state say they will challenge the ban in the Supreme Court.
Jan. 11, 2011 — Top iron ore producing Orissa says it is considering seeking a ban on exports of the key raw material.
Jan. 20 — The Supreme Court delays its decision on the ban to mid-February.
Jan. 25 — Indian railways announce an increase in freight costs on iron ore for export by 50 percent to 1,500 rupees per tonne.
Jan. 29 — India’s Multi Commodity Exchange (MCX) and Indian Commodity Exchange (ICEX) launch the world’s first iron ore futures contracts. But a ban on foreign players means liquidity is low.
Feb. 10 — Steel Authority of India (SAIL) wins environmental approval for its own iron ore mines in Jharkhand. SAIL says it will be operating in three years and will be key to its future iron ore supply.
Feb. 11 — The Supreme Court again adjourns its hearing on the Karnataka ban, this time to April 4.
Feb. 18 — Chhattisgarh joins Orissa in seeking central government approval to ban iron ore exports.
Feb. 28 — India hikes export duty on iron ore to 20 percent from 5 percent for fines and from 15 percent for lumps in its annual budget.
March 3 — Freight rates are hiked again, this time by 100 rupees per tonne to 1,600 rupees.
March 30 — Indian Railways says it will impose a “busy season” charge of 7 percent on iron ore freight rates from April 1 to June 30 and from Oct. 1 to March 31. The charge will equate to about 150-200 rupees per tonne, one trader says.
April 5 — Supreme Court orders Karnataka state to lift ban on iron ore shipments from April 20.
June 27 — Iron ore exporter Mineral Enterprises Ltd says to call on Supreme Court to uphold lifting of the Karnataka ban which has been delayed by an inquiry into illegal mining.
July 27 — An independent-led inquiry implicates B.S. Yediyurappa, chief minister of Karnataka, in a $3.6 billion illegal iron ore mining scandal.
July 29 — Supreme Court imposes an interim ban on mining in the district of Bellary, a key iron-ore rich region in Karnataka, on concerns of environment degradation.
July 31 — Yediyurappa resigns as Karnataka chief minister.
Aug. 5 — Supreme Court partially lifts iron ore mining ban in Bellary district, allowing state-run NMDC to mine up to 1 million tonnes a month from Aug. 6.
(Compiled by Jo Winterbottom and Manolo Serapio Jr.; Editing by Sugita Katyal)
Iron ore exports seen halved
India’s iron ore exports, which fell for the first time in a decade last year, could halve over the next five years as the country feeds the expansion of its steel industry. Full Article
FACTBOX – India’s iron ore output and exports
NEW DELHI | Mon Aug 15, 2011 2:37pm IST
(Reuters) – India’s iron ore exports, which fell for the first time in a decade last year, could halve over the next five years as the country feeds the expansion of its steel industry.
Here are some key facts about the Indian iron ore industry:
PRODUCTION:
- India produced 212.6 million tonnes of iron ore in 2010/11 and exported 97.6 million tonnes.
- There are about 500 mines in the country, half of which are operational. These are held by about 80 companies.
- High-grade ores with 62-65 percent iron are produced mainly in the east and south. Low-grade ores with 50-60 percent iron are produced in the west and south.
- The largest mining firm is state-run NMDC, which produces about 29 million tonnes annually, mostly for local sales.
- The steel industry is a big domestic user of iron ore. Many steel companies have captive mines.
EXPORTS:
- India is the world’s third-largest exporter after Australia and Brazil. Goa is India’s biggest exporter.
- China is India’s biggest buyer, with its proximity helping it secure ores with low freight costs. India sells the bulk of its iron ore via the spot market.
- The largest exporting company is Sesa Goa, a unit of London-listed Vedanta Resources.
- Other large producers and exporters are Essel Mining, Rungta Mines, V.M. Salgaocar, MSPL and Chowgule.
- Miners in Goa have lower costs as mines are located near the port, and so avoid road and rail charges.
CHALLENGES:
- In its 2011/12 budget, the federal government hiked export duties on iron ore to 20 percent from 5 percent for fines and from 15 percent for lumps in a bid to cool domestic prices to help steel firms.
- Shipments from Karnataka, source of a quarter of India’s annual exports, have been banned since July 2010 and exports have yet to resume despite a Supreme Court order allowing shipments from April 20.
- Port infrastructure is poor and vessels can wait up to seven days to load cargo.
- Indian prices generally follow the global market, dominated by Australian and Brazilian miners, with China buying on a spot basis for its low-grade ore needs.
- Slower exports could mean a surge in stocks of fines, complicating storage problems at mines. The Karnataka ban led to an estimated 15 million tonnes of unsold stocks of low-grade ore lying in the mines as of late July this year.
FUTURES
- The world’s first iron ore futures debuted in India on Jan. 29, but volumes have been muted as participation of foreign players is not allowed.
Sources: Federation of Indian Mineral Industries, industry members and Ministry of Mines.
(Compiled by Manolo Serapio Jr.; Editing by Sugita Katyal)
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…and I am Sid Harth@mysistereileen.com
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