As India rides on the infrastructure highway, building more roads and rail links, manufacturing millions of cars its domestic consumption of iron ore and steel is increasing. The rising domestic demand, not only has a direct impact on soaring steel prices worldwide but is also affecting trade with China. Steel and iron ore are India’s largest exports to China.
Citing booming domestic demand, India the third largest exporter of iron ore to China (after Australia and Brazil) has been gradually cutting supplies to the mainland. India’s share of iron ore exports to China fell 17 percent to a record low of 628 million tons in 2009, down from 20 percent in 2008. The trend is expected to continue to fall by 5-10 percent over the next five years as steel mills fight to fill the burgeoning demand within India.
Indian steelmakers have projected capacity at 90 million to 100 million tons by 2012, an increase of at least 50 percent from 60 million tons now, which will boost their iron ore demand to about 150 million tons, or 67 percent, from 90 million tons, Reuters reported.
Besides catering to India’s craving for iron ore, analysts also pinpoint the country’s surging iron ore prices and additional taxes levied as reasons for the cut in exports to China. Iron ore prices in India climbed above US$100 a ton late last year to reach a little under US$140 a ton this year amid bullish forecasts for the rest of the year, which prompted the government in December to double its tax on iron ore lump exports to 10 percent and add a 5 percent levy on fines, Reuters reported. India’s domestic steel consumption rose 8.5 per cent to 51.23 million ton (mt) during April-February’10 against 47.24mt in the the year-ago period.
Meanwhile, in order to reduce their costs on iron ore imports and compensate for the drop in imports from India, Chinese steel mills are sourcing from within. Beijing Ye-Steel Trading Co, a private steel mill that buys ore from the spot market, stopped buying imported iron ore after prices surged to above US$130 per ton in February.
“We are now buying domestic iron ore with a 66 percent iron content priced at 1,080 yuan (US$158) per ton including tax, which is much cheaper than imported ore,” a sales manager from Ye-Steel, told China Daily. The company is one of several steelmakers choosing domestic iron ore sources more often.