You are here
Logistics woes drive India mills to buy iron ore overseas
STEEL mills in India are increasingly tapping the global market for iron ore as they find it difficult to transport the key raw material from local mines, and demand for the metal surges in response to the government's ambitious plans to improve the nation's infrastructure.
"Today, India is a net importer of iron ore" as producers along the coast buy from overseas because they face domestic logistics challenges, mainly as a result of an overloaded railway system, Tuhin Mukherjee, managing director of Essel Mining & Industries Ltd, said in an interview in New Delhi.
Freight and passenger trains in Asia's third-largest economy jostle for space on the same tracks, and goods carriers often have to make way for passenger traffic, prolonging turnaround time for wagons hauling commodities. More supplies of iron ore will be required as the South Asian nation is set to overtake Japan as the world's second-biggest steel producer this year.
More demand from India will help global mining companies, especially as some forecasters including the Australian government expect China's demand to shrink as steel production tops out. Fortescue Metals Group Ltd doubled iron ore sales outside China to 8 per cent in the year through June, and has experienced strong growth in cargoes to India, chief executive officer Elizabeth Gaines said in an interview in August.
"If iron ore is available at competitive prices domestically, it won't happen," Seshagiri Rao, joint managing director of the country's top mill JSW Steel Ltd, said in an interview, referring to imports. "That's why we are requesting the domestic mining companies to adjust the prices in line with the quality of the iron ore. But the problem today is that even though the iron ore is getting mined, transportation is the issue."
Inbound cargoes from April through July, the first four months of the current fiscal year, were 5.5 million tonnes, more than three times shipments in the year ago period, according to Commerce Ministry data. In contrast, exports dropped 40 per cent on year to 5.1 million tonnes. Australia's government expects annual imports to rise to 19 million tonnes by 2020, with exports at eight million tonnes.
"Wherever you get a better price, better availability, people will go for that. You cannot restrict that," said Mr Mukherjee, who runs the iron ore arm of billionaire Kumar Mangalam Birla's Aditya Birla Group. "Earlier, people were talking about quantity, today they are talking about quality. If at a good price they get good quality and low aluminium, they will jump on that."
India will emerge as a major ore importer in the coming years, and may ship in over 100 million tonnes a year by 2030, Paul Gray, research director for the global iron ore market at Wood Mackenzie Ltd, said at a conference in New Delhi on Wednesday. "China is going to reach a tipping point soon," said Mr Gray. "Fortunately, India is waiting in the wings." BLOOMBERG