Uneasiness prevails in setting the third quarter pricing formula for iron ore and coking coal, now that only a few days are left. Annual contracts replaced by quarterly arrangements may also see the emergence of monthly contracts.
The enormity of the volatility in the pricing of these two inputs has baffled all concerned. The index based fixation of prices is putting maximum weightage to the sets of unforeseen circumstances like floods in the mines, strike at the plants which are impeding the smooth supply flow.
The options offered among quarterly, monthly and the spot prices by the supplier may not provide any solution in view of the uncertain trend that the price curve may take in the coming period. It is quite apparent that the buyers? segments are fragmented, too much concerned in only protecting their regional interests at the cost of a unified bargaining power.
Chinese negotiations by their top majors are reportedly neutralised by the small and medium mills and the Japanese plants are at the receiving end in negotiating JSM levels.
All this have led to a spate of activities in scouting for sources of raw materials in other unexplored locations with a fair amount of success.
However, between clinching a deal and actual commencement of operations in foreign locations, a whole gamut of negotiations and agreements is to be worked out as preferred by those countries in terms of setting up of finishing facilities near the sources of raw materials.
Thus, sourcing abroad for raw materials is a long term affair and may not always solve the crisis for the same in the home country. But the scenario has offered immense possibilities in not only globalising the steel industry but also opening up new fronts in consortium approach of negotiations.
Credit must go to SAIL Chairman in leading the combine of PSUs and private majors in forming a consortium and bidding at Hajigak iron ore mine exploration and setting up steel plants at Afganistan.
Future events would prove how successful the venture was, but it is indeed a path breaking approach on negotiation and showing to the outside world the combined strength of India majors in the bargaining table.
Taking the clue forward, can we devise a method of working out indices for iron ore and coking coal prices within the country itself, now that prices of raw materials are likely to move up further with the full introduction of Minerals Resource Rent Tax on miners? profits by Australia from 2012?
The author is DG, Institute of Steel Growth and Development. Views are personal