The story of iron ore is one of the constantly changing in prices and policies. The four decades old practice of annual benchmarking was changed to a quarterly process in March 2010, when the Big Trio-Rio Tinto Plc, BHP Billiton and Vale SA- together voted for the same.
And now BHP Billiton is in news by entering into monthly contracts. The period since the do away with the annual pricing, has brought about sharp volatility in iron ore prices. Following the decision to go in for quarterly pricing in March, the iron ore prices fell from $186.5/Dmt (dry metric tonne) in April to $117/Dmt in July 2010. But the prices have been climbing steadily ever since and reached a $191/Dmt in February 2011.
So where does India fit in the story? As a matter of fact, China cannot do without iron ore imports, and India is the third largest exporter and fourth largest producer of iron ore in the world. India produced 215 million tonne of iron ore and exported 106 million tonne in 2008-09.
Of the 129 million tonne of fines produced, 92 million tonne was exported. In the case of lumps, the production was 86 million tonne and exports accounts for 14 million tonne. About 50% of Indian iron ore production is exported of which more than 80% is exported to China. China's import of Indian ore accounts for 15-20% of their total imports.
With half the iron ore being exported, Indian miners are deeply impacted by volatility in ore prices and freight rates. Worldwide, freight cost is at the centre of attention of the global players. Shipping costs from Australia to China can vary widely from $6 to $50 per tonne. The China Iron and Steel Association (CISA) is in discussion with Australian miners about the stabilisation of freight charges to reduce volatility and keep costs stable.
In the internationally compatible terms, Indian Commodity Exchange (ICEX) has launched a new rupee denominated futures contract in 62% Fe grade of iron ore in January 29, 2011. It has also come up with multiple delivery centers at Ennore Port, Vizag, Haldia and Paradip.
MMTC, the state-owned largest supplier of iron ore, which is handling 15% of the total iron ore exports, is a stakeholder at ICEX. Its competencies would be exploited to provide the physical market with expertise as required by the traders.
Alliances with FIMI and IOSDA are an attempt from ICEX to spread the awareness required in the present nascent derivative market of iron ore.
A futures contract facilitates transparent price discovery and liquidity in the market. Exchange guaranteed contracts have lower transaction costs and price leverage benefits. Standardized contracts guarantee the quality and quantity of underlying product.
Export of iron ore from India is the topic for discussion and debate with the Indian steel manufacturers arguing for a ban on export of this critical raw material. The immediate focus is on the states of Karnataka and Orissa, two major suppliers of iron ore in the country. Assocham is also in favour of a ban on ore exports.
Traders are expecting a significant rise in export prices after April 2011. And to manage the price vagaries, for Indian miners, steel mills and traders, the ICEX contract is the apparent choice. The contract is designed to tackle the present scenario of risks and costs for internationally compatible iron ore trade.
Miners and traders seem to have realised the same and are reiterating this with their constantly increasing participation. India's importance in iron ore cannot be allowed to diminish. This can be best ensured by making appropriate changes in the policy framework as and when warranted.
And now BHP Billiton is in news by entering into monthly contracts. The period since the do away with the annual pricing, has brought about sharp volatility in iron ore prices. Following the decision to go in for quarterly pricing in March, the iron ore prices fell from $186.5/Dmt (dry metric tonne) in April to $117/Dmt in July 2010. But the prices have been climbing steadily ever since and reached a $191/Dmt in February 2011.
So where does India fit in the story? As a matter of fact, China cannot do without iron ore imports, and India is the third largest exporter and fourth largest producer of iron ore in the world. India produced 215 million tonne of iron ore and exported 106 million tonne in 2008-09.
Of the 129 million tonne of fines produced, 92 million tonne was exported. In the case of lumps, the production was 86 million tonne and exports accounts for 14 million tonne. About 50% of Indian iron ore production is exported of which more than 80% is exported to China. China's import of Indian ore accounts for 15-20% of their total imports.
With half the iron ore being exported, Indian miners are deeply impacted by volatility in ore prices and freight rates. Worldwide, freight cost is at the centre of attention of the global players. Shipping costs from Australia to China can vary widely from $6 to $50 per tonne. The China Iron and Steel Association (CISA) is in discussion with Australian miners about the stabilisation of freight charges to reduce volatility and keep costs stable.
In the internationally compatible terms, Indian Commodity Exchange (ICEX) has launched a new rupee denominated futures contract in 62% Fe grade of iron ore in January 29, 2011. It has also come up with multiple delivery centers at Ennore Port, Vizag, Haldia and Paradip.
MMTC, the state-owned largest supplier of iron ore, which is handling 15% of the total iron ore exports, is a stakeholder at ICEX. Its competencies would be exploited to provide the physical market with expertise as required by the traders.
Alliances with FIMI and IOSDA are an attempt from ICEX to spread the awareness required in the present nascent derivative market of iron ore.
A futures contract facilitates transparent price discovery and liquidity in the market. Exchange guaranteed contracts have lower transaction costs and price leverage benefits. Standardized contracts guarantee the quality and quantity of underlying product.
Export of iron ore from India is the topic for discussion and debate with the Indian steel manufacturers arguing for a ban on export of this critical raw material. The immediate focus is on the states of Karnataka and Orissa, two major suppliers of iron ore in the country. Assocham is also in favour of a ban on ore exports.
Traders are expecting a significant rise in export prices after April 2011. And to manage the price vagaries, for Indian miners, steel mills and traders, the ICEX contract is the apparent choice. The contract is designed to tackle the present scenario of risks and costs for internationally compatible iron ore trade.
Miners and traders seem to have realised the same and are reiterating this with their constantly increasing participation. India's importance in iron ore cannot be allowed to diminish. This can be best ensured by making appropriate changes in the policy framework as and when warranted.
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