The mining industry has sought removal of 5 per cent export duty on iron ore lumps, a key input in steel-making, saying the tax barrier along with high railway freight has "out-priced" the ore in the global market.
Seeking removal of the duty, the body of domestic miners — the Federation of Indian Mineral Industries (FIMI) — has shot a letter to Commerce Minister Anand Sharma.
Giving the rationale behind withdrawal of the duty, FIMI Secretary General R K Sharma said the demand for Indian iron ore lumps has started shrinking in Chinese spot market as Australian and Brazilian variants are low-priced.
While freight on board price of Indian iron ore lumps in Chinese spot market is hovering around $54-56 a tonne (for ferrous content of 63.5 per cent), the delivered price of Australian and Brazilian ore starts $51 per tonne, he said.
Of the country's total iron ore exports of 105 million tonnes in the last fiscal, about 88 per cent was shipped to China which is the biggest export destination for Indian ores.
However, owing to uncompetitive pricing, the exports to China dipped by over 20 per cent in May, Sharma said, adding the merchant miners normally export about 7.4 million tonnes of the raw material to the neighbouring country per month.
Even as the miners want export duty on iron ore to go, the Steel Ministry is pushing for higher tax barrier to curb overseas shipments and encourage value-addition of the raw material by steel mills in the country.
For the ensuing Budget, the Steel Ministry is believed to have recommended increasing the export duty on iron ore to 15 per cent, a move which it said would help the government mop up over Rs 4,000 crore revenue.
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The government is already considering linking the royalty rate on extraction of iron ore to the market price of the raw material, which the industry says will dent their margins once the rates start recovering.
At present, iron ore carries a fixed royalty of up to Rs 27 a tonne, depending on its variety and grade. The proposal is to levy a certain percentage of ad valorem royalty on the market price of the raw material.
"The proposed ad valorem royalty may seem beneficial for miners at present as iron ore rates are on a lower side, but once it goes up, it will dent their margins severely," FIMI adviser B S Chauhan said.
Mineral-rich states like Jharkhand, Madhya Pradesh and Chhatisgarh, however, stand to gain from the proposed move as their royalty collection will go up with increase in iron ore prices, he added.