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India increases export duty on Iron ore

January 5, 2012

India, China’s largest exporter of iron ore, raised the export duty of the raw material to 30 percent from 20 percent, a rise of almost 50 percent in order to protect the domestic industry. The move is expected to slash exports to China, which is the main importer of Indian ore and increase global prices substantially. Exports are expected to reduce to 50 million tonnes from the projected 65 million this year, as compared to 97 million tonnes which were exported last March.

India is one of the largest exporters of iron ore, while China is the worlds largest steel industry. China counts India as its third largest supplier of the steelmaking ingredient. China imported 68.5 million mt of iron ore from India over January to November 2011, or 11% of its total imports in the period. The shortage is expected to push up global prices by 7 to 10 percent over the current US$140 a ton.

The decision comes with some pitfalls however, according to analysts, although India wants to curb exports of iron ore to reserve them for domestic steel production to boost her infrastructure, the nation doesn’t have the technology to use iron ore fines. Secondly, the export hike and subsequent rise in prices will give Australian and Brazilian suppliers time to consolidate their domination of the global market.

Citing environmental clearances and  illegal mining allegations, Karnataka a state in Southern India had also totally banned the mining and export of iron ore.  India had in February last year also increased both duties on iron ore fines and lumps to specifically cut exports to China.  New Delhi is trying to cut down on illegal iron ore mining and shipments but favours better tracking and monitoring along with higher taxes rather than blanket bans on exports. Such regulatory uncertainty however deflates industry confidence of India being a stable supplier.

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One Comment leave one →
  1. Deepak permalink
    January 12, 2012 3:11 am

    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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