Iron Ore From Paradise Wins No Takers as China Upends Market

Updated on
  • ‘There’s absolutely no market,’ Goan industry group reports
  • China’s green push hurts demand as mills shun lower grade ores

Vale CEO Seeks to Help Balance Iron Market

A China-led flight to quality in the global iron ore market is punishing producers of the lower-grade material, with miners in India facing an increasing battle to find buyers for their cargoes as demand dwindles.

In Goa, exporters are struggling to sell even a quarter of what they shipped last year, according to Glenn Kalavampara, secretary at the Goa Mineral Ore Exporters’ Association. “There’s absolutely no market,” he said by phone from Panaji, capital of the western state that’s better known for its sparkling beach resorts. “The preference for higher-grade ore is a major concern.” he said.

While Indian exports account for just a fraction of the global seaborne market of about 1.4 billion tons that’s dominated by Vale SA, Rio Tinto Group and BHP Billiton Ltd., the plight of the low-grade shippers highlights the new dynamic. A concerted anti-pollution push in China this winter has supercharged the premium commanded by higher-grade material, which is more efficient. This week, Rio pointed to “clear evidence” of a structural change in the market, and earlier this year, BHP highlighted the industry’s “new reality”.

“There are hardly any exports,” R.K. Sharma, secretary-general of the Federation of Indian Mineral Industries, said by phone from New Delhi. Sharma has been working in the sector for almost five decades, and at one time saw Indian exports top 100 million tons. “Even the Goans who are near the ports and have the least costs in the country are not able to sell,” he said.

China’s push to clean the air has exploded the price differential between high and low grades. On Friday, spot ore with 65 percent iron content from Brazil was at $87.20 a dry ton, while benchmark material of 62 percent was $69.35, and 58 percent was less than $40, according to Metal Bulletin Ltd.

Goa shipped half of India’s total exports of about 31 million tons in 2016-17, with a seasonal pattern to trade, as the retreat of the four-month monsoon around the end of September usually brings a revival in activity. That’s not happened this year, and miners from the state, which include Vedanta Ltd., have shipped just 680,000 tons of lower-content ores in the two months since mining resumed, down 76 percent from a year ago, according to Kalavampara.

That China’s overall demand remains robust -- even as poorer grades get shut out and some mills are forced to trim production to ease pollution over winter -- was in focus on Friday. Data from Beijing showed year-to-date purchases near 1 billion tons over 11 months as imports snapped back in November.

Citi’s Outlook

With the global market in flux, banks are factoring in lower shipments from India. Citigroup Inc. -- which is bullish on the outlook for prices in the first quarter -- expects exports will drop to 20 million tons next year from 28 million in 2017, according to its annual commodities outlook. After holding steady in 2019, the nation’s flows may slump to 10 million tons in 2020.

In India, exports of ore above 58 percent attract a duty of 30 percent, and miners have been seeking to have the levy scrapped to enable them to better compete with global players. “You know how aggressive Australia and Brazil are,” said Kalavampara. “We have requested the central government to kindly consider scrapping tax for up to 60 percent to start with.”

The difficulty in exporting lower-grade ore has led to a build-up of inventories at ports and mines. In October, Vedanta said it’s sitting on stockpiles of about 4 million tons, according to R. Kishore Kumar, chief executive officer of the iron ore division. The company plans to raise the iron content in its ore to 58-to-59 percent from 54-to-57 percent.

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