Indian steel, shipping get a Chinese shot

MUMBAI: China’s increasing appetite for iron ore, fuelled by the ’08 Olympic Games, is helping Indian shipping and mining industries reap money. Last year, almost 1,100 vessels from India shipped about 50m tonnes of iron ore to Chinese shores. This is over 50% of the 90mt of iron ore exported from the country during the period.

On the shipping front, the rates of Panamax vessel fluctuated between $12,000 per day and $33,000 per day and that of Supramax between $13,000 and $27,000. Buoyed by the rates, the shipping business clocked a revenue of about Rs 700 crore last year. Exports of iron ore to China last year were valued at about Rs 15,000 crore.

India has also emerged as the biggest player in the spot market for exports to China and overtook Brazil as the second-largest iron ore exporter to the middle kingdom in ’03. Indian exports account for about 20% of China’s total volume. Australia remains the biggest overall exporter.

“China’s construction projects for the 2008 Olympic Games are pushing up steel demand by 2-4 %. Olympic construction will cost around $40bn and requires approximately 1-2bn tonnes of steel. Moreover, the modernisation in the country has made China the largest buyer of steel in the history of the world,” said an industry expert. Pankaj K Mishra, managing director, Canopus Shipping & Trading, said, “Of the 1,500 vessels loaded with iron ore, 70% moved to China.

These shipments moved in mini capes, panamax, handymax and handy-size ships and even small vessels of 15,000-25,000 tonnes range. We estimate a 10% growth in exports this year, majority of which will be absorbed by China.” A shipping ministry official adds, “Many factors will increase the exports of iron ore to China and these include a National Development and Reform Commission (NDRC) which is planning to curb over-production of steel in the country. The commission has demanded consolidation of Baoshan Iron and Steel, the nation’s largest steelmaker, and Ma'anshan Iron and Steel, the tenth largest. This is intended to increase China’s bargaining power with iron ore suppliers.”

Despite growing demand, Indian vessels are yet to catch up with their foreign counterparts in terms of catering to the growth. “Participation of Indian flag vessels in India’s international trade is just 16%, owing to the low tonnage. In the iron ore trade, the share decreased to 10%, and the remaining is carried by overseas flag vessels. Indian shipping majors are trying to increase tonnage, which will add more profit to the kitty,” added Mr Mishra. With proven reserves of 6.9 bn tonnes, India produces a quarter of the world’s iron ore.

Though iron ore production has been witnessing a near double-figure growth, exports have been growing faster, more than 100% in five years. India's exports of iron ore has gone up from 25% of the total production in ’01 to almost 60% last year. Interestingly, 55% of the total Indian exports to China were iron ore.

For China, iron ore imports from India make sense because of lower logistics costs. This also suits domestic steel manufacturers for whom importing iron ore is cheaper than exploring for the mineral in the country. China’s iron ore reserves are less and scattered, and according to estimates, can satisfy domestic demand for only 40 years.