Rail freight hike may pressure iron ore prices

Indian Railways' move to raise freight cost on iron ore for exports by 50% from Thursday, to take advantage of firm global prices, may further push up prices that are already hovering around record highs.

Iron ore prices have been marching towards USD 200 a tonne, a record last seen in February 2008, and analysts say the Indian supply situation will be key in deciding future price direction. India is the world's third largest supplier of iron ore, with about half of its total output of more than 200 million tonnes landing in China, which houses the world's largest steel industry. The railways stated in a circular, dated January 25, that it would raise the freight cost on iron ore for exports to Rs 1,500 (USD 32.9) per tonne from Thursday. "(Global iron ore) prices could go up by USD 11-12 a tonne," said Dhruv Goel of SKTC, an exporter in the eastern Orissa state, India's top producer. "If it can't be passed on, the miners will have to take smaller profits." On Tuesday, offers to sell iron ore remained firm as key indexes held near record highs on restocking by steelmakers in China. Indian ore with 63.5% iron content was being quoted at around USD 190 a tonne, around the same level from last week, traders in Asia said. Indian Railways periodically raise freight rates on iron ore based on market prices of the commodity. "There has been an increase in prices in China. Exporters have been gaining, so why not the railways," said a railways official, who could not be named due to the state-run body's policy.