THE LONG-TERM export contract of iron ore with Japanese and Korean steel mills may soon come under threat. Country's largest iron ore producer NMDC may terminate contracts with companies based in Japan and Korea unless buyers agree to pay substantially increased price for the ore. NMDC is forced to increase its price due to higher freight charges and the recently imposed advalorem export duty. The negotiations to renew long-term contract with Japan and South Korea is scheduled for the last week of this month. "A joint meeting of officials from ministry of commerce, ministry of steel, MMTC and NMDC will be held this week to discuss the mandate for signing the yearly memorandum of agreement (MoA) with Japanese and Korean steel mills,' NMDC chairman and managing director Rana Som told ET. MoA is being signed for pricing and quantities of iron ore to be exported to these countries. "The higher export duty on iron ore would play an important role in finalising contract price for current fiscal. We may also put forward the option of refusing exports if buyers do not agree to pay more for our higher input costs,' he said. India exports about 3.5 million tonnes (mt) of high grade lump ore to Japanese and Korean steel mills under long-term contract. These contracts are renewed annually to take into account changes in market price of the mineral. However, as iron ore contracts form part of bilateral trade negotiations, the buyers get a preferential pricing that often is much lower than global price of the mineral. The prices for the Japanese mills and Posco have always acted as a benchmark for domestic iron ore prices. However, currently the domestic prices of iron ore are higher than export realisations from long-term contracts by 97-231%. This has distorted the entire trade of ore which NMDC now wants to rectify through higher net sales realisation under new contracts. The fresh pricing for domestic buyers would also be decided after export negotiations are over. It is expected that NMDC could seek inclusion of 15% ad valorem export duty recently imposed by the government on ore into the exports contacts. This would be over and above building up freight escalation clause into contracts that resulted domestic prices to rise by 47% in October last year. If Korean and Japanese buyers agree for this, long-term export price of iron ore by NMDC may increase substantially for current fiscal. NMDC exported 3.4 mt of iron ore in 2007-08, out of which 3 mt tonnes went to Japan and the rest to South Korea. While the net sales realisation from exports ranged from Rs 538 per tonne to Rs 1292 per tonne, domestic price ranged from Rs 1783 per tonne to Rs 2546 per tonne. According to an official source if benchmark international price increase of 65% is applied to NMDC's products from April 1 and if Japanese and South Korean customers accept to bear the export duty then the export realisation as on April 1 may become higher than the likely domestic prices. ruhi.kandhari@timesgroup.com