Indian Iron Ore Miners Need To Cooperate To Compete - MSPL
June 09 2009 - 6:13AM
Dow Jones News
India's fragmented iron ore mining industry needs to cooperate
more in order to compete with global mining companies, as the
structure of the market is changing rapidly, an executive at one of
India's biggest iron ore miners told the Federation of Indian
Mineral Industries (FIMI) iron ore summit in Singapore Tuesday.
"It's not just a question of the global recession, the (iron
ore) game itself is changing radically," said K.K. Kumar,
vice-president of marketing at Indian mining company MSPL Ltd.
India's traditional role as a swing producer was being
threatened by the increasing involvement of global mining companies
in the spot iron ore market in China, Kumar said.
"Small and medium-sized (Chinese) steel mills, our traditional
market, are being wooed by the big three miners," he said,
referring to Rio Tinto PLC (RTP), BHP Billiton Ltd. (BHP)and Vale
S.A. (VALE).
India has 250 mines, which exported around 105 million tons of
iron ore in the year to March 31, most of it to China.
The global economic slowdown and the consequent reduction in
steel production on a global basis has transferred price risk from
buyers to suppliers, and the mining industry needs to respond,
Kumar said.
"China needs India as much as India needs China in this new
environment," he said.
India iron ore exports were a counterweight to the negotiating
power of the big three global miners, but to make the best of the
situation Indian miners needed to act in unison, he said.
Kumar recommended that Indian miners consider a new pricing
formula where a reference price for each grade of Indian ore could
be set as a floor, avoiding cut throat competition between Indian
miners.
Another option would be to enter into three- or six-month term
contracts at fixed prices or volumes, he said.
Until September 2008, Indian iron ore on the spot market traded
at a premium to the annual contract prices negotiated by the big
global miners with leading Chinese steel mills.
However, the spot iron ore fines price collapsed from $200 a
metric ton in mid-2008 to as low as $55/ton earlier this year, well
below contracted rates.
The spot price is currently $67.75/ton, which including freight
costs is around $7 below the contract price negotiated between Rio
Tinto and Japanese and South Korean steel makers, a level which
some analysts still believe will act as a benchmark this year.
Kumar also recommended that FIMI establish a representative
office in China as an urgent priority, to help Indian miners better
market their products and to present a united front to Chinese
steel mills, possibly negotiating directly with the China Iron
& Steel Association.
Indian miners also need to continue to lobby the government for
better rail and port services, as logistics account for 65% of
Indian iron ore costs, and reducing this percentage should be a
priority, he said.
On June 3, India's Ministry of Railways reduced freight charges
on iron ore meant for export by 25% to 30% to help the
competitiveness of Indian miners.
-By James Campbell, Dow Jones Newswires; 65-64154-082; james.campbell@dowjones.com