Why can't we sell at the Iron ore at world market price? - Sandip K. Dasverma

Re: Selling iron at Rs. 27 / Tonne or about $0.57 cents/ Tonne** when real prices in the world market are $84.4 plus. And going up.

An article is in Wall Street Journal of December 6, 2006. I had said earlier in my last June's blog ( http://mathtalentsearch.blogspot.com/2006/06/revisiting-orissa-development-plans.html ) that the steel Industrialists are not in Orissa for their love of Orissa but for making super profits and to tie up remaining Iron ore deposits through MOUs(Memorandum Of Understanding). And that instead of collaborating with other states in India (Chhatisgarh & Jharkhand) like the OPEC (Organization of Petroleum Exporting Countries) GOO is foolishly competing with them(and they with each other) and bringing down the price of the ores and diluting the terms and position of strength they are in, I speculated. Now cat is out of the bag. It is clear that POSCO is moving to Orissa because Government of Brazil wanted them to pay the market price for iron ore. Obviously the 30% swap is a sham. They can’t export steel because the official GOO policy, which allows export of steel, only after conversion. So this is a brilliant maneuver to hood wink the established GOO policy with inside help. Once it is exported from their private port who will keep the count of quantity? The fox will be in charge of the hen house, is not it? Expecting the inspector level GOO officers to do it will be like expecting and asking low paid police constables to keep law and order in the City.
Our bureaucrats are so ill informed or compromised that not only are they selling iron at Rs. 26 / Tonne or about $0.57 cents/ Tonne** when real prices in the world market are $84.40, and going up.
I have so far oly seen one initiative by Dr. Jatish Mohanty, the conscientious retired bureaucrat and his team petitioning the President of India. So the GOO can share 50% of the profits due this difference in price of Ore, which is fixed by Government of India. But no other initiative. The Government of Orissa, under Naveen babu has remained as secretive as ever.
I had also argued about the externals (costs of restoring the environment).
I had also noted the deafening silence of our academia and journalists.

And since then only advancement or development has been further give away. To add to the scandalous low prices of Ores, POSCO has managed to get SEZ qualification to their factories, so they don't pay sales tax for 1st 5 years and half sales tax for another 5 years. This is like adding insult to injury.

It is like Dr. Chitta Baral says - giving away family silver.

Why can't we make them pay the market price?? Why can’t we make them pay for the externals? Who is protecting POSCO and the give away and why is Government of India, bent on giving away for cheap ores when price in the world market is increasing in leaps and bounds? I can only speculate but it is the journalists who can answer. The opposition in the state assembly can put on question hour or activists can ask through RTI. But for some reason everyone is silent except small peasants, whose land is being acquired on behalf of the MNCs and corporate houses, by the Government of Orissa. The rest are all quiet.

Again what about our journalists and academia? What are they doing?

No wonder we are poor and this way we will remain poor, unless the give aways are replaced by enlightened self-interest, to ask for fair market prices for commodities we sell.

Yes, we can and will sell but to the highest bidder.

Do I make sense to any one??


The article for those who can't access WSJ:

Publicly, steelmakers and iron-ore producers are clashing, with some steel companies still saying the price of iron ore has reached an apex and iron-ore companies suggesting it hasn't. "The iron-ore market is tight," said Lakshmi Mittal, chief executive of Mittal Steel Co., the world's largest steel company by output and largest single iron-ore purchaser. "I do not expect an increase, but I do not see the iron-ore prices falling." Qi Xiangdong, deputy secretary general of the China Iron and Steel Association, said he expects the iron-ore price to change only by "a small margin" in 2007, either slightly up or slightly down. In some ways, a slight increase is in the best interests of Chinese steel makers because it encourages smaller or mid-level iron-ore producers to develop more reserves and helps China weed out some of its small inefficient steel makers that can't afford any price increase.
Full Text (774 words)
(c) 2005 Dow Jones & Company, Inc. Reproduced with permission of copyright owner. Further reproduction or distribution is prohibited without permission.

As talks begin between the world's major steel makers and iron-ore producers to set prices for next year, consensus is building that prices will rise between 5% and 10% and that the near-20% increase of this year won't be repeated.

Moreover, Chinese steel makers, who failed in their attempt to resist iron-ore producers' demands this year, are intent on leading the talks and setting an industry pattern. Brazil's Cia. Vale do Rio Doce, the world's largest iron-ore miner, and Shanghai Baosteel Group Corp., one of the largest steel makers in China, have been in early talks about the contracts, according to people familiar with the matter.

Iron ore is a crucial ingredient for making steel. Higher iron-ore costs could pressure steel makers' financial results or lead to higher steel prices, and could raise the cost of making everything from washing machines to cars.

Unlike previous talks, when steel makers were scrambling for supplies, the talks this year are set against a different industry backdrop. Demand for iron ore remains strong and supply tight, but not as tight as last year. Talks are also expected to proceed more quickly this year than last year when China's initial refusal to agree to a 19% increase dragged on for months.

Publicly, steel makers and iron-ore producers are clashing, with some steel companies still saying the price of iron ore has reached an apex and iron-ore companies suggesting it hasn't. "The iron-ore market is tight," said Lakshmi Mittal, chief executive of Mittal Steel Co., the world's largest steel company by output and largest single iron-ore purchaser. "I do not expect an increase, but I do not see the iron-ore prices falling." Qi Xiangdong, deputy secretary general of the China Iron and Steel Association, said he expects the iron-ore price to change only by "a small margin" in 2007, either slightly up or slightly down. In some ways, a slight increase is in the best interests of Chinese steel makers because it encourages smaller or mid-level iron-ore producers to develop more reserves and helps China weed out some of its small inefficient steel makers that can't afford any price increase.

The world's three largest iron-ore producers -- CVRD, Rio Tinto PLC and BHP Billiton Ltd. -- aren't likely to give up their pricing power easily in coming months. Roger Agnelli, president of CVRD, has hinted iron-ore prices haven't topped out yet because the increase hasn't matched the surge in price for copper, another mined mineral with rising demand. Rio Tinto Chief Executive Leigh Clifford, in a presentation to investors in October, said Chinese import demand has been growing by 50 million metric tons or more a year and that iron- ore producers, despite "record levels" of investment in new iron-ore mines, are struggling to increase iron-ore production fast enough to keep up with the commodity boom.

"The industry has, in general, underestimated the enduring strength of demand," Mr. Clifford said. Such market tightness, his comments suggest, could justify higher contract prices. Some observers point out that other big costs for steel makers such as for shipping and coal are more under control, meaning steel companies might be ready to accept a modest increase in the price of iron ore.

"The [iron-ore] producers are eager to get another price increase, and I see few ways to prevent them," said Daniel Altman, a steel analyst for emerging markets at Bear Stearns in New York. "It is not a question of if; it is how much."

The price of iron ore rose 19% in 2004, 71.5% in 2005 and 19% this year to the current price of about $44 per metric ton of iron-ore fines and $76 per metric ton of iron-ore pellets. Observers differ on their perspectives of pricing but tend to agree that price increases by iron-ore makers might be slowing and predict an increase of between 5% and 10% next year with prices flat or declining in the years that follow. Some, however, predict iron-ore companies will have the upper hand and continue increasing prices until 2009.

China has good reason to lead the talks. China produces and consumes about one-third of the more than one billion tons of steel produced globally each year, but it doesn't have plentiful cheap, high-quality iron-ore reserves. It plans to import about 320 million metric tons of iron ore this year and is increasing its internal iron-ore production as much as possible to minimize dependence on iron ore from Australia, Brazil and India.

To hedge against the increasing iron-ore prices, several steel companies such as Luxembourg-based Mittal and Pittsburgh-based U.S. Steel Corp. continue buying and developing their own mining assets.
http://infosources.blogspot.com/2006/12/steelmakers-want-to-restrain-iron-ore.html