Atul Chaturvedi, secretary for India’s steel ministry made a pretty astounding statement to the Financial Times this week, saying “It will be good to completely ban iron ore exports as these are non-renewable resources explaining “Once you exhaust them, you won’t get them [again]. New Delhi already imposes export taxes on iron ore. Mr. Chaturvedi also told the FT the government may go even farther, to the point of banning coal and oil exports as well.
India is the third-largest iron ore exporter and the fourth largest producer in the world and has significant deposits of coal, bauxite and other ores. About half of India’s annual 220m-ton iron ore output is exported to China but however appealing the ideal of self-sufficiency, it’s a non-starter in practice. India exported 106m of the 230m tons of iron ore it produced last year. Banning shipments would devastate miners specializing in powdery iron ore fines 85% of exports while doing incalculable damage to trade relations not just with China, India’s number one customer, but Japan and South Korea too according to the FT.
There are several issues at stake here in addition to the trade relations. Some steel producers would be delighted with a ban on iron ore. They have seen domestic iron prices rise as the global price has risen even though they know their suppliers costs have remained broadly level, creaming of a massive transfer of profit from domestic steel producers to domestic miners such as Sesa Goa, Obulapuram Mining and Anantapur Mining. At the same time, steel producers have come under pressure to limit steel price rises to support domestic steel consumers. Some steel producers however are also miners such as Sterlite, Tata Steel and SAIL (Steel Authority of India). It would not be surprising if some of India’s steel companies were not behind this idea. To a limited extent, the authorities have a valid point, at least in terms of conservation of resources. India’s reserves, a third the size of Australia’s, are being run down faster than their competitor. Ten years ago Indian ore accounted for 8% of the world seaborne market; last year it was 13%.
Yet India produces twice as much as it consumes and to limit production to domestic consumption would crush several very successful domestic mining firms. A better solution would be, like the Australians, to raise taxes on what is exported and at least generate revenue that can be re-invested in steel intensive infrastructure projects or reduce the government’s 5.5% budget deficit. The government is already being forced into a potentially explosive removal of fuel subsidies due to budgetary constraints, an attempted move 8 years ago that resulted in riots and a rapid capitulation by the authorities.
Although India has moved to liberalize its markets and embrace western ideals of capitalism it still carries the baggage of its socialist culture and ideas of self sufficiency and state control still hold sway there more than we understand. The danger could be that if banning exports gains traction other ores could likewise be swept up in the same mood. India is a significant exporter of bauxite used to make aluminum and chromites used in stainless steels. Atul Chaturvedi is not some crackpot fringe politician. As secretary of India’s steel ministry he has some influence and is a mainstream politician. Let’s hope his colleagues and the wider business community do not share his views. In a global market, increasingly turning to protectionism in terms of access we do not want a matching withdrawal of supply, global growth does not that way lie.