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Hard-hit China steel mills offer hope for India's iron ore

Friday, Oct 30, 2015

Miners from India's top exporting state of Goa are renewing sales after action to halt illegal mining, but with iron ore in oversupply and steel prices at multi-year lows, price will be key to finding a foothold, say traders.

Indian iron ore miners resuming exports after a three-year hiatus face a radically altered market, but may find buyers for low-quality ore among loss-making Chinese steel mills bent on slashing costs.

Miners from India's top exporting state of Goa are renewing sales after action to halt illegal mining, but with iron ore in oversupply and steel prices at multi-year lows, price will be key to finding a foothold, say traders.

Vedanta Ltd , India's biggest private miner, shipped its first iron ore cargo of 88,000 tonnes to China this month.

"Low-grade iron ore has good potential because mills are making losses," said a Shanghai-based trader who plans to resume supply of Indian material to Chinese mills. "I think there is massive scope for low-grade cargoes to come to China."

But to compete with better-quality Australian material, Indian iron ore cargoes need to be priced USD 2 a tonne to USD 3 a tonne cheaper, he warned.

While low quality ore, which carries higher levels of contaminants such as silica and phosphorous, can affect steel quality and slow down blast furnace performance, traders said cost savings would outweigh any negatives.

"In the current market where the steel price is so poor I don't think mills would worry about production rate. If the cost is better for them they would shift to India," said a second Shanghai-based trader. "The only question is whether India can supply enough iron ore to China."

China imported 933 million tonnes of iron ore in 2014.

Shrinking demand has pulled Chinese steel prices to their lowest in at least two decades and the country's largest producers posted a combined loss of 28 billion yuan (USD 4.4 billion) in January-September.x

Iron ore prices in turn have fallen more than 60 percent in the past two years, trading below USD 50 a tonne this week.

EXPORT CURBS

Annual iron ore exports from Goa reached about 50 million tonnes in 2010/11 before mining was banned in September 2012.

India's Supreme Court capped output at 20 million tonnes a year when it lifted the ban in April last year, although exports have been slow to resume as companies had to secure environmental clearance as well as dozens of other approvals.

About 11 million tonnes of already-mined iron ore is stockpiled at Goa's ports and mines, said Dhruv Goel, managing partner at consultancy SteelMint.

He put the cost of producing iron ore in Goa plus transportation and taxes at about 1,614 Indian rupees (USD 25) per tonne, but said exports need to have sufficient iron ore content to attract reasonable prices in overseas markets.

"Considering current global prices, exports are viable for some miners having better infrastructure and having iron content over 57 percent," he said.

Vedanta stock price

On October 30, 2015, at 12:07 hrs Vedanta was quoting at Rs 105.10, down Rs 1.75, or 1.64 percent. The 52-week high of the share was Rs 263.55 and the 52-week low was Rs 76.70.

 The company's trailing 12-month (TTM) EPS was at Rs 4.91 per share as per the quarter ended September 2015. The stock's price-to-earnings (P/E) ratio was 21.41. The latest book value of the company is Rs 114.88 per share. At current value, the price-to-book value of the company is 0.91.

 

moneycontrol.com

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