There is a strong signal that the markets for scrap, iron ore and coking coal would exhibit different patterns of volatility in the next few weeks? time. Rigorous steps against private builders in China have taken away the sheen out of the property markets forcing the government to settle for a lower GDP growth of 7.5% against 9% in the current year. It would result in contraction of demand on steel production and consumption leading to less demand for raw materials by China, the largest buyer who imported a massive volume of 688 million tonne of iron ore in 2011. India is currently selling 63.5% iron fines at $149/tonne/cfr. As spot prices are showing a downward trend, China is reported to turn to Rio Tinto for supplies on index based spot prices.
This trend would get stronger with reluctance on the part of buyers to place contractual orders. Scouting abroad for fresh ore sources is also bearing some fruits. Thus supply would match and may even exceed demand with downward pressure on prices which may go down to $130-140/tonne/fob in the next few months? time. In India banning on illegal mining in Karnataka and restriction of movement of iron ore without value addition outside the state of Orissa have created a temporary shortfall. NMDC price based on international price parity may not exhibit a major rise in April.
Coking coal has fallen from $235/tonne/fob in Q1 of 2012 to $210/tonne/fob in Q2. There is a marked trend to conserve coal by countries like China and Indonesia. While China is currently buying coal from Mongolia and exporting small tonnages of coke, Indonesia has imposed a ban on exports of raw materials without minimum value addition and capped FDI in mines to 51%.
Australia, USA and Canada are major players in the seaborne trade of coal and would mostly meet up the shortfall. It is felt that 30% tax on profits of the mining companies in Australia would have marginal impact on coal prices. Taking all these factors into consideration, the prospective coal prices may settle at $190-$200/tonne/fob.
India would need to import around 40-45 million tonne of coking coal in fiscal 2012-13 in view of additional steel availability from BF-BOF route including SAIL. Demand for thermal coal is on the rise from the UMPPs as well as from the sponge iron units. Nil customs duty on steam coal in the Budget would make imports cheaper by $12.5/tonne. The shortfall in domestic availability would have to be met via imports and the prices of thermal coal are likely to go up in the coming months in view of rising demand and supply restrictions.
Shredded scrap price is moving northwards due to higher demand for constructional steel from Turkey. Current price of heavy melting scrap (80:20) 1&2 at $460/tonne/cfr Nava sheva is higher than the previous week?s level.
India is restricting import of melting scrap at around 5.5 million tonne by utilising sponge iron in the charge mix in induction furnace in skewed fashion of 80:20 ratio.
The author is DG, Institute of Steel Growth and Development. The views expressed are personal