Indian iron ore losing ground in China .

Despite an increase in iron ore exports to China in recent years, India is losing ground in the Chinese market to rivals such as Australia, Brazil and South Africa.

India, which used to account for a fourth of Chinese iron ore imports in 2005, has seen its market share dropping to 17 per cent in 2009.

This is regardless of the fact that Indian exports to China have grown by over 57 per cent during the period.

SPOT PRICE BASIS

Despite a decline in market share, India has managed to retain its traditional ranking of being the third largest iron ore exporter to China after Australia and Brazil.

According to China Customs Statistics, Chinese imports grew by 128 per cent to 628 million tonnes in 2009 from 275 mt in 2005.

"We sell mainly on a spot price basis," said Mr R.K. Sharma, Secretary General, Federation of Indian Mineral Industries, commenting on one of the main reasons for the decline in India's market share. In a spot deal, the landed cost of the Indian ore is not competitive, he said.

Large exporters such as BHP Billiton and Vale sell on the basis of long-term contracts and have recently switched over to quarterly pricing model. "The bench-mark price of Australian and Brazilian iron ore is lower than the Indian spot price," said Mr Rahul Baldota, Executive Director, MSPL, an iron ore exporter.

FREIGHT RATES

Also, the competitiveness of Indian ore is getting eroded as margins have shrunk due to the frequent hikes in freight rates - especially the Railways and the levy of export duty among others, said Mr Baldota.

Moreover, Chinese buyers resort to Indian imports only to meet the gap in their demand and supply, Mr Sharma added.

OTHER COUNTRIES

Besides, exports of iron ore from South Africa have picked up in the recent years apart from what is being sourced from Australia and Brazil. Australia has grown its share in the Chinese iron ore market to 41.7 per cent in 2009 from 40.8 per cent in 2005.

Similarly, Brazil has seen its market share increasing to 22.7 per cent from 19.9 per cent. South Africa has increased its share from 3.3 per cent in 2008 to 5.4 per cent in 2009, as its exports more than doubled to 34.14 mt from 14.5 mt in the previous year.

"Many countries such as Bolivia, Mexico and Vietnam have started supplying iron ore to China," said Mr Ranjan Chibba, Vice-President of Red Horse Resources Ltd, a Chinese importer.

"Earlier, this was never heard of," he added. Further, buyers in China are not finding India as a stable supplier. Duty hikes coupled with negative news flow, especially relating to windfall tax among others, are affecting the buyers' sentiments, Mr Chibba added.

Indian iron ore exports to China in the recent past have slowed down due to the weakening demand for steel from the crisis-hit Europe.

This, in turn, has affected the spot iron ore prices that have declined by almost a fourth in the past two months from the levels of $195 a tonne to $140 a tonne.

"Unless the demand for steel picks up, the demand for iron ore is likely to remain subdued," Mr Chibba said.

Source : The Hindu Business Lines