Record iron ore glut of 204 mt to trigger price fall

Analysts feel huge domestic surplus together with global iron ore prices entering bear territory

Weak domestic demand despite expanding iron ore production in the country has led to the mineral ore surplus reaching an all-time high of 204.09 million tonnes (mt) at the end of 2016-17. Inventory of iron ore at mine pit heads has climbed to 149 mt (as on March 31, 2017) with ore getting accumulated in key producing states like Odisha and Jharkhand.

Exports, the only outlet for such excess ore is unviable with the present 30% export tax and softening of international iron ore prices. Prices of benchmark 62% iron ore fines have crashed to an 11-month low of $55.43 a tonne.

Analysts feel the huge domestic surplus together with global iron ore prices entering the bear territory will pull down the country's iron ore prices.

Giriraj Daga, investment manager with K M Visaria Family Trust said, “Iron ore price correction is imminent. International prices have softened a lot. The surplus inventory has to be exported but weak prices and 30% export tax will prevent that.”

India's iron ore output in FY17 was 191 mt but compared to this, domestic demand was only 107.91 mt, growing barely 10% over the year-go fiscal in the same period, production moved up 23%. Though exports saw a substantial increase to 28 mt in last financial year (from 4.5 mt in 2015-16), they were mainly done by National Mineral Development Corporation (NMDC). The public sector miner's exports are canalised through MMTC and enjoy concessional export duty of 10%. With the Supreme Court banning iron ore exports from Karnataka, the ore was largely shipped from Goa that produces low-grade ore which does not attract any duty.

The worrying factor is piling surplus in Odisha and Jharkhand — the two states are contributing 85% to the stockpile at mine heads. Both the states produce iron ore of higher grade (more than 58%) whose exports are taxed at 30%.

Federation of Indian Mineral Industries (Fimi) has written recently to the finance ministry, urging for an abolition of export duty for iron ore up to 62% iron ore.

Fimi's Secretary General R K Sharma in separate letters to Finance Minister Arun Jaitley and Revenue Secretary Hasmukh Adhia said, “At present, the iron ore from Odisha and Jharkhand can be exported only from Haldia, Paradip, Vizag, Dhamra, Gangavaram and Gopalpur ports. It is therefore requested that export duty on iron ore exported from these ports may be removed for iron ore up to 62% Fe content as against up to 58% Fe now.”

Earlier, the Odisha government has also alerted the Union Mines ministry on rising stocks of iron ore and the need to reduce export duty to nil. Though the state recorded iron ore production in upwards of 100 mt, lack of domestic market to absorb this ore was a limiting factor. In the context of plummeting international prices, exports from Odisha were not competitive with the prevailing 30% duty.