India?s largest iron ore miner, National Mineral Development Corporation (NMDC), plans to hike prices of products by almost 70% from April 1 and could move towards a quarterly pricing regime for all long-term contracts in line with the move by big global iron ore producers like Vale of Brazil and BHP Billiton.
?Usually, our iron ore export prices are linked with international markets and hence, given that most other ore makers have hiked their prices, we too are hopeful that our export price for iron ore fines would be more than $100 per tonne in 2010-2011,? a senior NMDC official said on the condition of anonymity. The plan could result in more upside to the public sector company, whose issue of shares to dilute 8.38% of the government equity attracted about Rs 10,000 crore from the market.
In 2009-10, the company sold iron ore in domestic markets at an average price of around Rs 2,000 to 4,000 per tonne depending on grade.
NMDC, which exports 15% of its output annually, sold fines at around $61 per tonne in 2009-10. ?We could also enter into a quarterly pricing regime for all domestic long-term contracts as per the new trend,? the official added.
On Tuesday, Vale, the world?s largest iron ore producer, and BHP Billiton Ltd ended a 40-year system of setting annual prices by signing short-term contracts with Asian mills, a move, which according to Goldman Sachs, could lead to a combined $20-billion rise in annual sales revenue for Rio Tinto, BHP Billition and fellow Australian producer Fortescue Metals by not selling iron ore at cash prices.
Sumitomo, Japan?s third-biggest steelmaker, agreed to pay Vale $100 to $110 a metric tonne for the three months starting April 1. BHP, the world?s largest mining company, said it will sell the majority of its production to Asian steel mills on shorter-term contracts.
Spot iron ore has more than doubled in price since September as steelmaking worldwide recovers from the financial crisis, topping $150-a-tonne last week.
The change in system was essentially the brainchild of BHP chief executive Marius Kloppers, who pushed to change the rigid benchmark into a derivative-driven system similar to other global commodities such as oil.
However, some steelmakers, particularly in Europe and China, continue to resist the move toward spot pricing for their main raw material. Mills are already dealing with a 55% hike in prices for coking coal, their other main input.
China?s government has thrown its weight behind the annual benchmark, with a ministry of industry and information technology official on Tuesday reiterating Beijing?s opposition to flexible pricing.
?It is a significant move as it could disturb the dynamics of European downstream industries like automobiles who rely on long-term steel contracts and also lead to more intense and continuous negotiations between iron ore miners and steel companies,? said AS Firoz, chief economist, JPC.