Iron ore export not profitable enough: NMDC

State-owned mineral giant National Mineral Development Corporation is pushing hard for a renegotiation of iron ore prices with its Japanese and South Korean buyers.

State-owned mineral giant National Mineral Development Corporation is pushing hard for a renegotiation of iron ore prices with its Japanese and South Korean buyers. Its realization from exports has dropped significantly owing to a significant increase in financial costs over the last two years.

8220;There have been a number of changes including imposition of export duty, increase in railway freight, especially in exports, and enhancement of port charges and increase in royalty rates. Under the present Long-Term Agreement LTA, the royalty on iron ore is borne by domestic customers, but in case of exports this has to be borne by NMDC. Unless the royalty is borne by foreign customers like their domestic counterparts, the difference in realization would continue to exist,8221; NMDC said in a letter to the Steel Ministry. It has sought a clear-cut directive from the ministry if it can proceed ahead with negotiations on ore prices for 2008-09 through state-run mineral exporter MMTC Limited. The LTAs with foreign clients especially the Koreans and Japanese Steel Mills are negotiated by MMTC on behalf of NMDC.

According to NMDC, the realization from exports has become so low today as compared with domestic prices that the entire pricing structure has not only become anomalous, but also a source of continuous criticism from domestic consumers. 8220;The matter has been deliberated at length by the NMDC Board. It was felt that there should be no reason for NMDC to continue export under long-term contract unless the realization is more than or at least equal to the net realization from domestic buyers,8221; a board member told The Indian Express. Negotiations with foreign buyers are slated to begin soon and an Indian team would soon visit Korea and Japan.

In case the price negotiations failed the contract for this fiscal would stand cancelled and both the buyer and seller would be relieved of the existing obligations and supplies envisaged under the contract for the balance period would be stopped forthwith, NMDC said.

Global mining giants like Rio Tinto and BHP of Australia are negotiating with Japanese and Korean steel mills to seek additional freight premium, but the latter have so far not agreed to do so. But Baosteel of China has agreed to new prices with Brazil8217;s Vale for 2008 iron ore by accepting the benchmarking of 65 per cent Southern System Fine ore and 71 per cent Carajas fine ore increases.

Traditionally, after the annual price settlement has been arrived at between the major buyers and sellers, other ore suppliers including India are invited by the Japanese steel mills for discussions on prices and on quantum of supplies.