Comments on: Commit long term to iron ore, China tells India http://www.2point6billion.com/news/2008/04/30/commit-long-term-to-iron-ore-china-tells-india-698.html China & India, 40% of the world's population Thu, 11 Mar 2010 11:13:19 -0700 http://wordpress.org/?v=2.8.4 hourly 1 By: kk kumar http://www.2point6billion.com/news/2008/04/30/commit-long-term-to-iron-ore-china-tells-india-698.html/comment-page-1#comment-11301 kk kumar Sun, 11 May 2008 05:07:54 +0000 http://www.2point6billion.com/2008/04/30/commit-long-term-to-iron-ore-china-tells-india/#comment-11301 India is only a marginal supplier to the vast Chinese market accounting for around 20% of the volume. It has little say in determining the prices. In fact, if India did not supply around 100 million mt of iron ore, the other major suppliers would have jacked up their annual contract prices beyond 65% agreed for 2008. Indian suppliers are also keen for a long term contract. The challenge, however, is what should be the price basis for long term contract. Unlike in case of Brazil and Australia suppliers following benchmark prices for the past several years, there is no such benchmark price for Indian iron ore. In the absence of this benchmark, price setting for long term is a challenging task. Given the unique conditions in India like small size mines, poor connectivity to ports, poor infrastructure like rail/road/port capacities coupled with high cost logistics, there is a need for a unique benchmark price for Indian iron ore. Recently there have been some efforts at arriving at the benchmark price. A framework for such a model has been presented in the iron ore conference held in Beijing, China on 29th April,2008. China now should seriously study the suggested framework and initiate dialogue with Indian suppliers for concluding long term supply contract. Without such a dialogue, no real break-through can be achieved between Chinese buyers and Indian suppliers on long term contract basis. India is only a marginal supplier to the vast Chinese market accounting for around 20% of the volume. It has little say in determining the prices. In fact, if India did not supply around 100 million mt of iron ore, the other major suppliers would have jacked up their annual contract prices beyond 65% agreed for 2008.

Indian suppliers are also keen for a long term contract. The challenge, however, is what should be the price basis for long term contract.

Unlike in case of Brazil and Australia suppliers following benchmark prices for the past several years, there is no such benchmark price for Indian iron ore. In the absence of this benchmark, price setting for long term is a challenging task.

Given the unique conditions in India like small size mines, poor connectivity to ports, poor infrastructure like rail/road/port capacities coupled with high cost logistics, there is a need for a unique benchmark price for Indian iron ore.

Recently there have been some efforts at arriving at the benchmark price. A framework for such a model has been presented in the iron ore conference held in Beijing, China on 29th April,2008. China now should seriously study the suggested framework and initiate dialogue with Indian suppliers for concluding long term supply contract.

Without such a dialogue, no real break-through can be achieved between Chinese buyers and Indian suppliers on long term contract basis.

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