The Union Steel Minister's announcement in the Lok Sabha on Tuesday that the Government may further hike the duty on iron ore exports to preserve supplies for domestic steel producers, has fuelled speculation about a probable rise in the benchmark price of the mineral.
The apprehension that the price might exceed $190 a tonne again may not be entirely unfounded.
The benchmark iron ore price, now set by the quarterly contracts linked to spot market, peaked in the first quarter of 2011 to more than $190 a tonne Ã¢â‚¬â€ a record high Ã¢â‚¬â€ and moved in a narrow band of $170-$180 a tonne for several weeks.
Last week, the benchmark with 62 per cent iron content for delivery into China hit a three-month high of more than $180 a tonne largely due to strong demand from China, the world's largest importer of iron ore, and tight supplies from India, the world's third largest exporter, following clampdown on illegal mining and higher export duties.
China accounts for about 60 per cent of the world's sea-borne trade for the commodity. Australia and Brazil are the largest exporters to China.
However, the chief executive of BHP Billiton, the world's largest miner and third largest producer of iron ore after Vale of Brazil and London-listed Rio Tinto, was recently quoted as saying that rising production costs and financing problems were causing delays at new projects.
Chinese domestic iron ore production, too, is believed to have been hit by lower grades and high cost-push inflation.
The problems have already pushed up the floor prices of iron ore to $140 a tonne, according to analysts.
According to one estimate, India's exports which fell for the first time last year in a decade, could halve over next five years to meet the burgeoning domestic demand for the ore.
Between April and July this fiscal, the exports were 23.78 million tonnes (mt) compared to 32.51 mt in the corresponding period of last fiscal, thus recording nearly 27 per cent decline. In 2010-11, the country's iron ore exports were 97.65 mt, posting a 17 per cent decline from 117.37 mt in 2009-10.
The export of lumpy ore now attracts 20 per cent duty against 15 per cent earlier. Another round of increase in duty will therefore mean further squeeze in exports with probable ripples in the world price of the mineral