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Credit default by Chinese banks hits iron ore exporters

BANGALORE: The four-year long iron ore mining boom in Bellary is over. The collapse of its main market, China, threatens the livelihoods of more than two lakh workers employed in the 70 large and medium sized mines in the Bellary-Hospet mining belt.

During the height of the boom, about a year go, the price of ‘fines’ (with a ferric content of 63 per cent), which were generally considered inferior quality ore, was about $120 a tonne, up from $17 a tonne in late 2003. Today, the prices are ruling at $45, according to Basant Poddar, Vice-Chairman of the Federation of Indian Mineral Industries (Southern Region).

Mr. Poddar told The Hindu that “at least 15 of the 25-30 letters of credit (LC) issued by Chinese banks, on behalf of Chinese importers, had bounced.” Each LC is valued at $3 million, which implies that exporters are in danger of losing liquidity worth $45 million. Mr. Poddar said Indian exporters had, unlike exporters from Australia and Brazil, refrained from entering into long term contracts. These suppliers had signed long term contracts, pricing the ore at $90 a tonne, when spot prices were much higher. At present, spot prices are about $45 a tonne.

According to FIMI, about 95 per cent of all exports from the Bellary region were for China. Nearly all these sales were at spot prices, not based on long term contracts, he added. Overall, Indian exports amounted to 104 million tonnes last year. The country exported 88 million tonnes of iron ore to China. Of this, the Bellary-Hospet mining belt in Karnataka accounted for 35 million tonnes in 2007-08.

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