India Hikes Iron Ore Export Duty to 30%

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Guest commentator TC Malhotra contributes to MetalMiner from New Delhi.

India’s federal government hiked the export duty on iron ore to 30 percent from the previous rate of 20 percent. The Commerce Ministry has raised the export duty on both iron ore fines and lumps, effective Dec. 30, 2011.

The government had raised export duties on both lumps and fines before, to 20 percent, in last year’s budget to check the indiscriminate export of the key steel-making raw material and to encourage domestic value addition.

The duty rise is likely to hurt India’s export competitiveness, while the move will directly impact Indian mining companies that export ore, like Vedanta Resources subsidiary Sesa Goa.

Sesa Goa Vice President AN Joshi was quoted by media reports as saying that it will impact operations of ore exporters like them, even though it may not fully bring exports to a halt.

Shipments of lumps will stop, as it will not be economical for Indian companies to export them. However, fines will be exported as Indian steel companies do not use them, Joshi was quoted as saying.

Fines and lumps are two different forms of iron ore used by steelmakers. While all steel companies use lumps, fines have to be converted into pellet forms before being used.

However, industry analysts believe that domestic steelmakers will benefit from the government’s decision to hike the export duty, as it will make the mineral cheaper by almost 50 percent for local steel companies. At the same time, the decision would create roughly Rs 90 billion ($1.8 billion) in additional government revenue.

Pipeline To China

A report published in Indian business daily Hindu Business Line claims that Indian iron ore exporters fear losing further ground in China, their key market, because of the latest hike in the iron ore export duty.

India is the world’s third-largest exporter of iron ore, after Australia and Brazil. China, the world’s largest steel industry, imports a considerable amount of iron ore mainly from Australia, Brazil and India, but it is understood that Chinese medium-sized steel mills prefer Indian iron ore. However, the export duty increases during recent times have declined the percentage of Indian iron ore export mainly to China.

According to mining trade group Federation of Indian Mineral Industries (FIMI), India exported around 40 million metric tons of iron ore from April-November 2011. Another 5 to 7 million tons could find their way out. Still, overall exports would decline 50 percent this year from last year’s 97.6 million tons.

India shipped 117.3 million tons of iron ore in 2009-10.

R.K. Sharma, the federation’s secretary general, was quoted as saying that with high export tax and railway freight, India’s iron ore exports won’t exceed 50 million tons this fiscal year through March.

Besides the rise in export duty, there was another reason that helped further decrease iron ore exports. Following allegations of illegal mining, the South Indian state Karnataka imposed a ban on exports of the raw material as of July 2010.

According to the Business Line report, in 2009, the Indian share in China stood at 17 percent. The report stated further that the iron ore trade was expecting some good demand from China in the near term; however, with the export duty hike, the hopes for those deals have been dampened.

–TC Malhotra

Comments (2)

  1. Deepak says:

    The steel industry is now shamelessly & openly gleefully anticipating reduction in iron ore prices at the cost of the exchequer and people of India by reduction of prices from NMDC’s ore supply to them after successfully lobbying the Steel and Finance ministries to increase the export duty on iron ore to 30%! In the name of conserving resources, these pvt profiteers are getting a Govt subsidy of Rs.25,000 crores from NMDC and railways at the cost of Indian Govt and public (by NMDC’s flawed pricing formula of international iron ore price less export duty less export railway freight (since the ore is for domestic supply, these factors of export duty less export railway freight should logically not be reduced to determine domestic ore price). Despite the huge subsidy, these steel producers have the face to increase steel prices for Indian consumers by Rs.500-1500 this month based on increase in international steel prices, thus robbing Indian consumers of the benefit of subsidised ore! They have also quoted twisted figures: in fact export of iron ore is worth USD 10 billion and steel import is just USD 4 billion and in fact on net basis, steel imports are much lower (note: besides iron ore cost, steel cost includes cost of coke, other raw materials, labour, capital, interest, etc. and is therefore not comparable). In any case, the steel industry is already creating an outflow of USD 14 bill of foreign exchange for import of coking coal and coke. More than 70% of the ore exported from India is of quality not used by Indian steel mills, 50% is waste for Indian steel mills; there is therefore no logic in conserving such ore. The price differential for iron ore between domestic and export is only due to Govt’s artificial tariff barriers for export with hidden intentions. India needs to implement the China model, where their ore is not exported only because domestic mills pay the market price and buy the ore before importing from distant sources with high freight. The applicable tax (VAT) in China is same for domestic sale, export or import of ore, giving a level policy framework. Thus, in India too, export duty increase should be only in conjunction with a similar level of duty on domestic sale, so that the Govt does not lost that revenue on domestic sale of ore and does not provide such a huge (unintentional?) subsidy (of Rs.20,000 crore) to pvt steel producers who price their finished product at market prices, and pocket the subsidy. Unfortunately, in India, officials are ready to sacrifice the country’s interest for petty gains at the behest of lobbyists.

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