China to cut Indian iron ore purchases if no shift away from spot sales
China will have to consider reducing purchases of iron ore from India if Indian suppliers do not moderate their “over-reliance” on spot sales, according to Luo Bingsheng, executive vice chairman of the China Iron and Steel Association.
“Last year India’s spot sales to China led to additional costs of 838.3 mln usd for Chinese steel makers,” Luo said at a conference.
“If the situation is not eased, China will slow or cease purchases of Indian iron ore,” Luo added.
He reiterated that Chinese steelmakers are interested in weighting their purchases more towards a long-term contract system.
Longtime contract arrangements appears to be unravelling as iron ore prices rise, with suppliers pressing for large increases in contract prices as well as doing more lucrative spot business.
Luo did not discuss possible alternatives to Indian ore. India is China’s number three supplier.
He said that Australia and Brazil, China’s top two suppliers, provide over 60 pct of their iron ore to China at contract prices, which allowed shipping costs to remain “relatively stable.”
But spot sales, which accounted for around 40 pct of China’s iron ore imports last year, have also had the effect of making shipping rates fluctuate wildly.
“India’s spot sales have negative effects on both sides, and seriously affect the competitiveness of Indian iron ore. Therefore, although China imports more from India each year, its market share in China’s iron ore market has fallen,” he said.
India had a 25 pct share in 2005, but saw its share in China fall to under 16 pct last year.
He said average CFR prices for Indian iron ore sold in China rose 135.4 pct last year to 157.96 usd per ton, “faster than than any other supplier.”
With India, “the current situation is totally irrational and unreasonable,” he said, noting that most transactions are spot deals involving small and medium sized steel makers, which are having difficulty locking in long term deals.
He said the share of spot deals in India-China transactions is “unsustainable” and must not “dominate our trade” in the future.
Tags: iron-ore, steel-maker