India Bans Exports of Iron Ore

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The Indian state of Karnataka’s announcement that they intend to ban the export of iron ore was treated with a mixture of dismay and derision in some industry quarters. Quoted in a Reuters article, Chief Minister B.S. Yeddyurappa is reported as saying in New Delhi this week “So many important steel companies have come (to Karnataka) because they are going to get rich iron ore here. They are going to add value to the iron ore here. We are not in favor of permitting it (iron ore) for outside (exports). Our aim is to impose a ban on exports and transport permits permanently,” he said.

Karnataka, India’s second-largest iron ore producing state, banned exports of the commodity from 10 ports in the past month and said it would stop issuing permits to transport ore to other ports for export. The article says India aims to raise steel production to 120 million tons by 2011/12 from an estimated 65 million tons in 2009/10. Karnataka, aims to raise its own steel output to 40 million tons in the next three to four years from the current 12 million tons.

In June, ArcelorMittal, the world’s largest steel maker, signed an initial agreement to spend 300 billion rupees ($6.5 billion) to build a 6-million-ton-a-year steel plant in the southern Karnataka state. The state is looking to fast track the project to break ground next year. Other companies that signed MOU’s with the state in June for steel plants include POSCO, Bhushan Steel Ltd and Surya Vijaynagar Steel & Power.

Detractors, not least of which many of the specialist iron ore miners themselves, point out that a large part of the iron ore mined in India can’t be used domestically anyway and so a blanket ban will cause widespread harm with no benefit. Although Karnataka’s iron ore is mostly high grade lump ore, India as a whole exports more fines than lump ores. “In 2009-10, only 90 million tons of iron ore were consumed out of 218 million tons produced. 128 million tons of iron ore were exported.” B K Handique, Minister of Mines, said during a Question Hour interview reported on India’s Business Standard. Most of the exported iron ore is in the form of iron ore fines for which India does not have any technology to process it, the Minister said.

A loose coalition of industry lobbyists and politicians have recently been increasingly strident in voicing concerns that India is exporting its low value iron ore and importing high value steels. As they point out neighboring China has a 40% export tax on scrap and coke but actively supports exports of higher value steel items. In a recent interview JSW Steel’s Sheshagiri Rao made the steel makers point saying “the steel imports into India have gone up by 66%. We imported 3.6 million tons of steel into India which is almost 18% of the total consumption within India is now being filled up by imports. Yet at the same time lower value iron ore exports have more than tripled in the last ten years.

In broad terms you can see the steel makers point of view. By banning exports, the spot price promptly fell and would probably stay below world prices if the ban remains in place. The major block to new steel investment in India is achieving captive rights to iron ore. If exports are banned, domestic iron ore miners would have no option other than to enter into long term supply agreements or sell out to steel makers looking for captive resources. The problem remains that much of what India produces the industry is not set up to consume (small particle size fines) but the answer to that building sintering plants to aggregate the fines prior to charging the blast furnace – is well within the technological scope of investing firms like ArcelorMittal and Posco. Whether India would be wise to give such firms the whip hand by banning exports of raw material for their exclusive use is another question but for sure in the unlikely event the trend to ban exports catches on in other states it will impact prices on the global seaborne iron ore market. India sold 107 million tons of iron ore to China accounting for 18% of imports in 2009. If India meets its finished steel capacity aspirations it could use all of the iron ore it produces subject to substantial sintering investments but new projects have been fraught by delays and set backs making the target look doubtful. The most likely solution will be a delay in implementation of the export ban giving time for all parties to plan for a more logical restriction on exports by grade or location. Having got this far, restrictions in one form or another are almost certain in the years ahead.

–Stuart Burns

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