'Price hike corrodes India's position in Chinese iron ore market'

Wednesday, 30 April 2008, 07:00 Hrs
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Beijing: Indian iron ore miners risk losing the Chinese market to their competitors because of sharp price rise of their products, said Luo Bingsheng, deputy director of the China Iron and Steel Association.

"The unreasonable high cost insurance freight (CIF) has already dragged India behind in its competition with Brazil in China," said Luo at the China-India Iron Ore Summit recently.

CIF is an international commerce term which means that the selling price includes the costs of goods, freight or transport and those of marine insurance.

The average CIF of Indian iron ore exported to China reached $157.96 per tonne in last December, $34.72, or 22 percent, higher than Brazilian price, resulting in what Luo called "twisted" price relations.

He attributed the surge in CIF to the price hikes in ocean freight.

China's iron and steel industry has taken action to import more iron ore from countries other than India.

Imports from India rose 3.4 percent this February, much lower than the 10 percent and 8.3 percent growth of iron ore import from Brazil and Australia, respectively, CISA statistics show.

Shipping cost from India to China rose $25.81 per tonne in the first 11 months of 2007 compared with 2006, taking up 94.7 percent of the total CIF hike.

However, with the average free on board (FOB) in 2007 growing by merely 3.24 percent, India was not the biggest beneficiary of the soaring iron ore price.

The current iron ore trade between China and India is mainly short-term transactions arranged through traders. It has created an opportunity for dealers to make a huge profit by raising ocean freight charges, according to Luo.

Of the 16.85 million tonnes of iron ore imported from India in the first two months of this year, 98.77 percent was in short-term transactions, CISA statistics showed.

R.K. Sharma, secretary general with the Federation of Indian Mineral Industries, also admitted that it were the dealers, rather than the Indian miners, that benefited most from CIF growth.

"The current trading mode has violated the interests of both the suppliers and the buyers. It has already undermined the competitive edge of the Indian iron ore in the Chinese market, and would affect its future prospects," Luo said.

Wu Jianchang, consultant with CISA, saw the future of China-India iron ore trade lying in the establishment of a long-term supply contract based on settlement by international open price issued annually.

"Only in this way could Chinese steel makers arrange long-term transportation contract with the shipping companies, and thus nail the ocean freight," Luo said.
Source: IANS
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