Tue Mar 1, 2011 7:29am GMT
SYDNEY, March 1 (Reuters) - Rio Tinto , BHP Billiton and other Australian iron ore producers could be in for a windfall of higher prices in the third quarter after India moved to hike export duties on iron to 20 percent, sector executives and analysts said on Tuesday.
The gains would come at the expense of steel mills worldwide, which are facing higher costs for an indispensable raw material at a time when costs appeared to be trending down.
"This will inevitably lead to higher spot prices, which when indexed later in the year will be the basis for higher contract prices," said an executive with a Australian iron ore company who did not want to be named.
India, the world's third largest iron ore exporter after Australia and Brazil, wants to conserve supply for domestic steelmakers, who play a vital role in building growing infrastructure.
Almost all of India's annual 100 million tonnes of iron ore exports head to China and the duty increase announced on Monday will make exports uncompetitive.
India plans to raise the duty to 20 percent from 5 percent on fines and to 20 percent from 15 percent on lumps. Fines are dust form ore with a lower iron content than lumps.
The Australian government on Tuesday upped its forecast for Australian iron ore exports this year to 425 million tonnes, more than any other country, predicting China would continue to be the main driver in seaborne consumption.
Analysts said they may need to rethink revenue forecasts for iron ore producers if the hikes have an impact.
"The general view has been that market conditions were stimulating a supply side response and when the supply starts to lift, price would come down," said UBS commodities analyst Tom Price.
SIGNIFICANT IMPLICATIONS
For four decades, miners and mills had agreed on a single annual price. But last year, Rio Tinto and BHP Billiton, the world's No. 2 and No. 3 producers, led a shift to quarterly pricing, based on the lightly traded but transparent spot market. Each quarter's base price is now linked to the average price of the preceding quarter.
The shift was immediately adopted by other Australian producers, including Fortescue Metals Group , Atlas Iron and Mount Gibson Iron .
Fortescue Executive Director Russell Scrimshaw recently said his company was "selling every tonne of iron ore it could produce".
India's greater focus on domestic demand comes as it grapples with concerns similar to China's: trying to hold down inflation while battling to meet demand for cars, homes and other steel-related goods from populations of more than 1 billion. Indian steelmakers have projected capacity at 90 million to 100 million tonnes by 2012, an increase of at least 50 percent from 60 million tonnes now, which will boost their ore demand to about 150 million tonnes, or 67 percent, from 90 million tonnes.
"You can see how a pickup in the spot market, which in the past meant little or nothing to BHP and Rio, now has very significant implications," said Trent Allen of Resource Capital Research. "And this move by India will push up the spot price."
Spot iron ore prices have so far barely budged, with Chinese mills wary of buying more ore when steel prices are coming down and there is still a huge stockpile of iron ore at Chinese ports which are usually cheaper to buy.
Indian ore with 63.5 percent iron content was quoted at around $188 a tonne, including freight, in China on Tuesday, said Chinese consultancy Mysteel, but traders say prices could rise $10-$15 in the near term with India's move.
"I think the increase in iron ore tax would have an impact on prices but it will take at least a couple of days for that to sink in," said a Shanghai-based iron ore trader who sells Indian cargoes to China. (Reporting by James Regan,sourced:Reuters)
The gains would come at the expense of steel mills worldwide, which are facing higher costs for an indispensable raw material at a time when costs appeared to be trending down.
"This will inevitably lead to higher spot prices, which when indexed later in the year will be the basis for higher contract prices," said an executive with a Australian iron ore company who did not want to be named.
India, the world's third largest iron ore exporter after Australia and Brazil, wants to conserve supply for domestic steelmakers, who play a vital role in building growing infrastructure.
Almost all of India's annual 100 million tonnes of iron ore exports head to China and the duty increase announced on Monday will make exports uncompetitive.
India plans to raise the duty to 20 percent from 5 percent on fines and to 20 percent from 15 percent on lumps. Fines are dust form ore with a lower iron content than lumps.
The Australian government on Tuesday upped its forecast for Australian iron ore exports this year to 425 million tonnes, more than any other country, predicting China would continue to be the main driver in seaborne consumption.
Analysts said they may need to rethink revenue forecasts for iron ore producers if the hikes have an impact.
"The general view has been that market conditions were stimulating a supply side response and when the supply starts to lift, price would come down," said UBS commodities analyst Tom Price.
SIGNIFICANT IMPLICATIONS
For four decades, miners and mills had agreed on a single annual price. But last year, Rio Tinto and BHP Billiton, the world's No. 2 and No. 3 producers, led a shift to quarterly pricing, based on the lightly traded but transparent spot market. Each quarter's base price is now linked to the average price of the preceding quarter.
The shift was immediately adopted by other Australian producers, including Fortescue Metals Group , Atlas Iron and Mount Gibson Iron .
Fortescue Executive Director Russell Scrimshaw recently said his company was "selling every tonne of iron ore it could produce".
India's greater focus on domestic demand comes as it grapples with concerns similar to China's: trying to hold down inflation while battling to meet demand for cars, homes and other steel-related goods from populations of more than 1 billion. Indian steelmakers have projected capacity at 90 million to 100 million tonnes by 2012, an increase of at least 50 percent from 60 million tonnes now, which will boost their ore demand to about 150 million tonnes, or 67 percent, from 90 million tonnes.
"You can see how a pickup in the spot market, which in the past meant little or nothing to BHP and Rio, now has very significant implications," said Trent Allen of Resource Capital Research. "And this move by India will push up the spot price."
Spot iron ore prices have so far barely budged, with Chinese mills wary of buying more ore when steel prices are coming down and there is still a huge stockpile of iron ore at Chinese ports which are usually cheaper to buy.
Indian ore with 63.5 percent iron content was quoted at around $188 a tonne, including freight, in China on Tuesday, said Chinese consultancy Mysteel, but traders say prices could rise $10-$15 in the near term with India's move.
"I think the increase in iron ore tax would have an impact on prices but it will take at least a couple of days for that to sink in," said a Shanghai-based iron ore trader who sells Indian cargoes to China. (Reporting by James Regan,sourced:Reuters)
Tags:India's iron ore sector, trends,steel industry, analysis, impact of the duty hike, Australia sees commodities boom rolling on, Indian steelmakers, Spot iron ore prices,
Posts
No comments:
Post a Comment