India hikes rail freight rates on iron ore exports
Source: Wall Street Journal (by Arpan Mukherjee and Biman Mukherjee)
Date of Publication: March 16
NEW DELHI --
The hike in railway freight by 300 rupees ($6.7) a metric ton is effective for two weeks starting Wednesday, a government official told Dow Jones Newswires, asking not to be named.
Industry executives said the increase will mean a 25% to 40% rise in existing freight rates. It will either push up Indian iron ore export prices or squeeze the margins of domestic companies that choose to absorb the higher cost, they said.
Railway freight cost accounts for about 65% of the cost of the ore exported. The hike in freight rates has jolted the domestic exporters as it comes barely 20 days after the federal railway budget spared them from an increase.
Indian Railways periodically changes freight rates, and local exporters say high logistic costs have hurt their competitiveness.
"It (the freight hike) is a very big deterrent and we will lose our competitiveness," Siddharth Rungta, president of the Federation of Indian Mineral Industries told Dow Jones Newswires. "We had started seeing a positive trend in exports after 13-14 months of dip."
Mr. Rungta expects iron ore exports to be between 99 million and 100 million tons in the year ending March 31, 2010, compared with 106 million tons a year earlier.
Industry executives expect the freight hike to spill over to the next fiscal year, as the railways' costs have increased due to a rise in fuel prices by 6%-7% at the end of February. Road transport operators had also increased freight rates by 10% to 15% earlier this month.
Mr. Rungta expects
It wasn't immediately clear why the increase in railway freight charges has been only on iron ore, but domestic steelmakers have been lobbying for restricting the exports of the raw material to ensure their future supplies.
There has been a spike in demand from
The spot price of the benchmark Fe-63 grade iron ore has risen by $10-$15 a ton in the past one month to about $110 per ton. The prices are about 40% higher than a year earlier.
Indian iron ore exporters expect long-term contract prices to rise by 40% to 60% on year after the conclusion of ongoing price negotiations between Chinese steel mills and global miners Vale S.A, RIO TINTO Ltd. and BHP BILLITON Ltd.
Monday, Rana Som , the chairman of
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