Quality issues threaten India iron ore sales to China

May 19, 2011 1:59pm GMT
* China says over 800 shipments from India substandard in Jan-Apr
* China buyer of nearly all India's iron ore exports
(Releads with Indian industry reaction, trader quote, changes dateline)
By Rajendra Jadhav and David Stanway

MUMBAI/BEIJING, May 19 (Reuters) - India's iron ore exports and prices could be hit by quality issues on $2.2 billion of shipments raised by top buyer China, an Indian industry official said on Thursday.

India is the world's third-largest iron ore supplier and sends almost all its exports to China, trade worth around $1.5 billion per month.

During the first four months of 2011, over a third of India's exports to the Chinese province of Jiangsu were substandard, China's General Administration of Quality, Supervision, Inspection and Quarantine (AQSIQ) said in a notice posted on its website (www.aqsiq.gov.cn).

"We should check the quality of ore before shipping. It is a serious issue. It may affect India's exports (and) price realisation," Basant Poddar, vice-president, Federation of Indian Mineral Industries told Reuters.

Jiangsu is China's third-largest importing province, receiving over 10 percent of the country's iron shipments in the first quarter.

Of the 2289 shipments that AQSIQ inspected from India into Jiangsu from January to April, 827 either had a lower iron content than stipulated in contracts or contained too many impurities, AQSIQ said.

India's shipments to China have yet to recover after Karnataka state, supplier of about a quarter of India's shipments, lifted an export ban in April. China's imports from India in the first quarter were down over 20 percent on the year at 26.5 million tonnes.

Iron ore prices are around $185 a tonne for spot sales while contract prices, set on a quarterly basis, hit a record $179.2 per tonne in the second quarter. [ID:nL4E7GJ0DM]

The problems were with cargoes sent by some traders rather than those from India's large mining companies, AQSIQ and industry players said. India's biggest iron ore miner is state-run NMDC and its biggest iron ore exporter is Sesa Goa .

Some traders and inspectors had produced inaccurate shipment reports for iron ore cargoes, AQSIQ said.

AQSIQ said local inspection departments would crack down on the practise and urged local iron ore importers to pay more attention to contracts, and to the reputation and size of their trading partners.

"Small miners and traders sometimes supply substandard ore as some of them are buying (different-grade) ores and blending them," said an iron ore trader based in Jiangsu province.

Chinese buyers often pay as much as 98 percent of the price for the key steel-making ingredient up front on the basis of Indian inspection reports.

After the shipment has cleared customs, buyers get their own checks on quality. If the shipment is below standard, they ask for compensation.

(Additional reporting by Ruby Lian in Shanghai, sourced Thomson Reuters)
(Writing by Jo Winterbottom; Editing by Simon Webb)