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Thursday, March 11, 2010

India's steel needs spell less iron ore for China

India's export taxes on iron ore and plans to ramp up supplies to domestic steel mills will cut shipments to key buyer China in the long term, and aid miners wrangling for a steep hike in term prices, if not scrap them.

The world's third biggest exporter of iron ore will use more at home, analysts say, stepping up pressure on China as it negotiates with key suppliers such as Vale, Rio Tinto and BHP Billiton, who are keen to boost term prices 70 percent or more.

India's share of iron ore imports by China, chiefly on the spot market, fell to 17 percent of a record 628 million tonnes in 2009, versus 20 percent in 2008, ceding ground to Australia and Brazil in a race to feed the world's largest steel producer.

"In the longer term we are going to slip down in China's iron ore market as steel demand is growing in India," said Rakesh Arora, an associate director with Macquarie Group in Mumbai.

"Indian iron ore exports to China could decline by 5 to 10 percent in the next 5 years. Naturally China will feel the pinch and that will sustain iron ore prices."

In January, India clung on to this No. 3 spot, sending 9.3 million tonnes to China, or an annual increase of 5.1 percent.

"Australia and Brazil are expanding capacity and will continue to increase their dominance," Arora added.

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