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Ver: Where is the India-China iron ore trade relationship headed?

India used to supply as much as 10% of China's iron ore requirements, but the South Asian country’s inconsistent policy over the past 5 years has resulted in a complex trading dynamic between the two. In 2016, India's iron ore exports to China was just 1.5% of the top consumer's total imports. In this video, S&P Global Platts senior editor Sui Ling Phang examines how India's relationship with China has evolved over the years in the iron ore space and where it is headed in the near term.

Transcripción completa

Video Transcript

Welcome to the Snapshot, a series that examines the forces shaping and driving global commodity markets today.

In this episode, we are going to take a look at India's dynamic relationship with China when it comes to iron ore.

India used to be one of the largest contributors to China's iron ore import needs, accounting for around 10% of China's total imports in 2011. But India's policy stance on iron ore exports has flip-flopped over the past five years.

Its key mining state of Goa, for instance, went through a mining ban from 2012 to 2014, and a production cap was later put in place. And then to encourage exports, duties were reduced in 2015 and abolished in 2016.

The Platts benchmark 62% iron ore index averaged just $55/dmt CFR China in 2015, compared to an average of around $170/dmt in 2011, when India’s exports were more mainstream.

Yet all is not lost. 2016 marked a tremendous year for the seaborne iron ore market, averaging almost $71/dmt in the last quarter.

India's iron ore fines continued to flow into China, tracking significant increases over the course of the year. A rush to load cargoes pre-monsoon in May also resulted in a bumper import figure for June.

India's 2016 exports of iron ore products to China were a mere 1.5% of China's total imports. Yet, this supply was sufficient to put a downward pressure on the price for low grade fines, and the spread compared to 62% Fe widened significantly. The competitive space for circa 58% Fe cargoes is also very crowded.

Chinese mills are much more familiar with Australian producers with much larger capacities and better chemical specifications. Indian iron ore had to be offered at notable discounts to be more attractive.

But it is important to note that with the significant lift in iron ore prices in 2016 – from a low of $39/dmt in January to $84/dmt in mid-December – Indian iron ore producers were still earning decent margins.

So much so that India medium grade iron ore miners have entered the foray. Despite the 30% export tax on fines with Fe content above 58%, these miners still found it profitable to export their cargoes. Indeed, because of the widening spread, these miners choose to export medium grade fines, rather than blend it to lower Fe. The cost of paying the 30% export tax must be less than selling it at the softer 58% high alumina index.

China remains the main outlet for India's iron ore fines and pellet exports. Of course, India aims to expand this base, to re-ignite relationships with the Far East and European steel makers. Sources have said this could be a strong possibility this year.

Also, while India exports iron ore to China, China's steel exports to India have not been greeted by the same warm welcome. But that's a story for another day, in the every changing, star crossed relationship, between a Tiger and a Dragon.

Until next time on the Snapshot, we’ll keep an eye on the markets.