Iron ore miners and exporters are facing double whammy at a time when the export demand is at its peak from China, the world’s largest steel maker.
Early this year the government levied a 10 per cent royalty on iron ore mining which hampered the industry for sometime. And last month, the commerce ministry levied export duty of 5 per cent on fines and 10 per cent on lumps which is likely to put a break on the pace of exports.
China requires over 700 million tonnes of iron ore to achieve the steel production target of 600 million tonnes. Out of this about 80 per cent is likely to be imported. India constitutes about 15 per cent of the Chinese ore demand.
Meanwhile, iron ore exports for FY10 may decline on unexpected customs levy as the steelmaking raw material would now become uncompetitive in global markets. The shipment of steelmaking raw materials jumped 23.23 per cent at 64.84 million tonnes until November 2009 compared with 52.62 million tonnes in the corresponding period last year.
After three months lull in the beginning of this financial year, the shipment started recovering with a surge in Chinese demand on revival of steel mills there. China, which has so far not signed long term deal with the three global iron ore majors including Rio Tinto, BHP Billiton and Vale due to price cut demand, is now looking at India and other spot markets to feed its local steel mills. The world’s largest steelmaker focused more on spot market to source iron ore at the current prevailing prices. This resulted in spot price doubling to over $100 a tonne.
“Certainly, the levy will put a break on our export target. We were eyeing at 110 million tonnes this financial year which is expected to reduce to 100 million tonnes,” said Federation of Indian Mineral Industries (FIMI) Secretary General RK Sharma.
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Despite global economic meltdown, iron ore exports from India recorded an increase of 0.4 per cent to 104.7 million tonnes in 2008-09 merely because of an upsurge in execution of orders in the first half. According to analysts, these orders were placed much before the fallout in global economy was exposed.
FIMI data shows total iron ore exports jumped a staggering 24.56 per cent in November after 141.27 per cent and 71.97 per cent growth in the previous two months respectively. In November, total shipments were at 10.66 million tonnes as compared with 8.56 million tonnes in the corresponding month last year. In October this year, total exports were at 10.28 million tonnes (4.26 million tonnes) as compared with 5.72 million tonnes (3.33 million tonnes) in the previous month.
“The export levy is totally unjustified as it has been taken without any consultation with the mining industry, particularly those engaged in the mining and export of lower grades of iron ore,” said Haresh Melwani, an iron ore miner and exporter based in Goa. Moreover, the decision is taken randomly as a knee jerk reaction, not as a planned Budgetary exercise, but as an arbitrarily imposed tax, thereby eroding the moral justification of the levy, he added.
These lower grade fines and lumps do not find any customers in the Indian steel mills, nor are any steel plants proposed in the next 20 year horizon which can utilise these fines or lumps, resulting in an unwanted burden on the export of these fines, since India’s technologies rely on coke, which is a very expensive raw material here. So all the steel plants must use high grades iron ore lumps (above 63 per cent of iron content) in order to reduce their coke consumption and produce steel economically.
This economic activity generates enormous jobs in mining, barging, workshops, etc in Goa, and by my estimate this business generated approx Rs 3,000 crore of foreign exchange by direct inward remittances and with a multiplier effect of 5 times, resulted in approx Rs 15,000 crore money circulation in Goa and surrounding local areas.