Japan has indicated that a steep reduction in the iron ore intake from India has become inevitable due to a substantial cutback on its crude steel output for the next fiscal (1999-2000). Consequently, Japan is said to have to reduced prices by 11.2 per cent for fines and 10.2 per cent for lumps for supplies during the 1999-2000 fiscal. This means an export realisation of about $18 a tonne during the year.

Negotiations between an Indian official delegation and Japanese steel mills on the subject begin in Tokyo on Monday.

The delegation consists of chief executives of MMTC Ltd, super star trading house, and one of the iron ore exporters, National Mineral Development Corporation, which supplies Baialdila iron ore for export, Kudremuk Iron ore Company Ltd, which makes available processed iron ore for export, besides senior officials in theministries of commerce and steel ministries.

With a price cut quite on the cards, the Indian team's worry is how to ensure that Japanese steel mills do not effect a cut in quantity as well.

The Indian team's fears stem from the fact that Japanese steel mills have projected a steel production of only 91 million tones in 1999-2000, down from the 115 million tonnes anticipated in the current fiscal.

What is more, even out of the projected steel output, the Japanese steel mills are expected to produce only 67 million tonnes of pig iron. This means less offtake of iron ore not only from India but from other producers/exporters as well. In the current fiscal, pig iron production by the mills is estimated at about 73 million tonnes.

The railway freight is one of the major cost elements that determines the viability of iron ore for export. In the past nine years, the freight has gone up by more than Rs 250 a tonne or roughly 223 per cent.Then, there are other factors such as the increase in poor charges,besides transportation changes and payments to mine-owners for iron ore supplies.

On the other hand, the export realisation during the above period works out to be a little more than Rs 300 a tonne, leaving just Rs 50 a tonne in the hands of producers/exporters to meet increase in other expenses like road transportation from mine to railway head, handling labour, mining machinery. Besides, in the beginning of 1990-91, only 30 per cent of the export realisation has gone towards payment of railway freight, which today is 55 to 60 per cent.