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Sesa Goa drops from Rs 490 to below Rs 470 reacting on News of a Chinese Ban on Imports of Iron Ore below 60% FE content…Should it cause any Worry?

Just last evening there was a News release that China’s Iron Ore Trading Association has banned it’s Members from Importing Iron Ore with a Fe Content of below 60%

Will this affect Sesa Goa?….Markets think so and have dropped the Share Price from Rs 490+ levels to below Rs 470 levels as I blog

If at all Sesa Goa will be impacted,It should merely be marginally….. and should not panic you to exit your Holdings…here are two brief reasons for this

  • The Ban does not cover the Actual Users, the Chinese Steel Mills… and their Licensed Agents…They can continue to import directly their requirements…Sesa Goa will cater direct
  • Sesa Goa deals also in Iron Fines with a Fe content of 61% to 63% 

China’s iron ore import needs are middle and low grade fines  with Fe content of 63.5% and below…Sesa Goa caters to this….Brazil exports largely high grade Ore

China imported 106 million tonnes of Iron Ore from India last year…40% of this was low grade Iron ore….Sesa Goa supplied over 12.5 million tonnes of total Imports from India,comprising 84% of it’s sales of 15 million tonnes

This latest move by the Chinese Trading Association is a twin attempt to influence Iron Ore Prices and purge their Traders ilk of many malpractices 

With the compelling Chinese Demand for Iron Ore,the pressure on Iron Ore Prices is unlikely to abate,unless China itself halts all Imports…unlikely

World Steel Production is expected to move towards 1500 million tonnes in the next year or two  and China’s share of it has grown  from 17 %  in 2001 to over 40% share currently

Where will China get the Iron Ore it needs ! ?….If Trading has been banned,the Mills will approach the International Suppliers directly…so the question is that by eliminating middlemen,will the Prices of  Iron Ore fall ?…if so,then by how much ?…. a lot depends on the long term contract prices being negotiated with Rio Tinto,Vale and BHP Billiton…Japan has already signed at 90% higher price levels than last year…China,the main buyer, is resorting to arm twisting yet again to get Iron Ore prices to drop…they tried it last year too…but in vain…I suspect their efforts this year too may fail….they realise they have no alternative to importing the Iron Ore…unless they choose to curtail Steel Production…this would affect their GDP Rate…they would think twice before letting their  GDP Growth rate drop

Monitoring Developments to protect your Sesa Goa Holdings is essential…but this ban should not cause you to exit Sesa Goa….It yet looks like a Compelling Buy..I blogged on this just yesterday…But you may reserve the decision to increase or initiate exposure till Company clarifies on the Impact of this Ban…my intelligent guess is that it would be a favourable clarification 


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