Iron ore exports decline 60% in Feb on high duties

BS Reporter / Mumbai Apr 12, 2012,
Miners’ association urges cancellation of December increase in export duty; says development hitting long-term interests.

Export shipments of iron ore declined 60 per cent in February on high duty levied by the government to discourage supply to steel mills abroad.

Data compiled by the Federation of Indian Mineral Industries (Fimi) showed the overall export fell to 4.22 million tonnes in February, compared to 10.58 mt in the corresponding period last year. The overall export in the first 11 months of 2011-12 recorded a decline of 36 per cent to 55.8 mt as compared to 87.3 mt in the same period last year.

The drastic decline in February’s shipment showed the government succeeded in its aim of discouraging these to make more available for domestic use. On December 30 last year, the government had raised export duty from 20 per cent to 30 per cent. About 90 per cent of India’s iron ore export goes to Chinese steel mills.

Fimi has renewed its demand for a rollback in export duty so that mining companies would be able to sell low-grade ore to steel mills abroad. In a recent letter to the Prime Minister and finance minister, FIMI argued, “Iron ore exports have become unviable and a loss-making proposition after the hike in export duty and sharp fall in international prices by more than $60 a tonne from its peak. With a logistics cost of 45 per cent of the net realisation (39 per cent railway freight and the other six per cent on movement from mines to sidings and demurrage), 10 per cent royalty on the price declared by the India Bureau of Mines (IBM) and 10 per cent port cost, margins have turned negative for the industry.”

Exports are expected to be half of last year’s, while there is no corresponding increase in domestic demand and lower production, so the respective state governments are getting less royalty. Moreover, there will be lower economic activity, said R K Sharma, secretary-general of Fimi.

He said fines were co-produced with lumps while mining ore, in a 70:30 ratio. So, for every production of a tonne of lumps, about 2.5 tonnes of fines are produced.

There is not enough demand for fines in the domestic market and, hence, these have to be exported. Around 90 per cent of iron ore exports are fines; lumps are eight per cent. If export of fines is not allowed, this may lead to closure of mines or lower production. This would mean the prices of lumps may rise in the domestic market, hampering the steel industry and inducing inflationary pressure. Hence, says Fimi, there’s also a need for better utilisation of fines in the domestic market through pelletisation and ensuring that future steel plants are fines-oriented.

Data collated by the IBM showed that between 2005 and 2010, the Geological Survey of India discovered 2,300 mt of new iron ore reserves, estimated at only 997 mt five years before, adds Fimi.

Sharma also contends the extra levy has led India to lose its competitiveness in the international market, with the share of our exports 11 per cent of the total in 2011 from 20.4 per cent in 2007.