The Hindu Business Line : High inland logistics cost makes Indian iron ore less competitive: KPMG

Chennai, Feb. 17 India will not likely to remain the most cost competitive source of iron ore. This is mainly because of inland logistics cost in India (specifically the Karnataka and Orissa regions) is five times that in Brazil and Australia. Only the Goa region has a cost of production comparable to that of global players, according to KPMG research.

The f.o.b. (free on board, which means seller pays for transportation of goods to the port of shipment, plus loading costs) cash cost of production in Australia and Brazil is between $15 and $17 a tonne, whereas in Karnataka and Orissa it is between $50 and $60 a tonne.

Small mill factor

The key market for India, the small steel mills, is expected to shrink due to increased pressure on margins on the steel companies. This will force smaller and inefficient mills out of play and due to the fact that the Chinese Government is envisaging significant consolidation, leading to closure of small mills and expansion of large players, says the KPMG research released at the Indian Maritime Summit 2009 organised by the Confederation of Indian Industry.

Over-supply

The outlook for iron ore in the global market is still not very bright. Post 2009, iron ore is expected to be in potential over-supply, mainly due to the expansion plans of leading global producers, including Rio Tinto, BHP Biliton and Vale. Going forward, iron ore trade will be more China-centric as demand continues to decline in markets like Japan and Europe. On the supply side, Indian iron ore imports into China may become difficult, the research says.

Thermal coal

On thermal coal, the research says that increase in imported coal-based power generation capacity could help ensure steady growth of thermal coal imports in the medium term. Based on coastal power projects awarded by the Central and State governments, the imported thermal coal trade to India is expected to rise to around 65-70 million tonnes by 2012.

Bulk of the increase in thermal coal import is expected to come from Indonesia.

Africa is expected to increasingly play an important role in coal trade in to India supported by enhancement of port capacity; sluggishness of trade to Europe and relative proximity as compared to Australia, the research says.

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