The ferrous metal industry is divided over the likely impact of a steep increase in export duty on iron ore proposed by the government. The Federation of Indian Mineral Industries (Fimi) says this will make Indian ore uncompetitive. Sponge iron and steelmakers have welcomed the proposal.
“India will run out of the market if the duty is raised as proposed,” Fimi Secretary General R K Sharma told Business Standard. Fimi has forecast that India’s ore exports will decline, as China has suspended importing the low-grade variety. Also, the Ministry of Railways has doubled the freight rate to Rs 400 a tonne.
Steel Secretary Atul Chaturvedi had last week said the government was considering raising the ad valorem export duty on all grades of iron ore to 20 per cent from the current level of five per cent on fines and 10 per cent on lumps. Chaturvedi had said a decision was expected by Friday.
“India requires to conserve natural resources for captive use for a long period,” he said.
India accounts for six per cent of the global iron ore reserves and ranks fifth worldwide. In spite of this, a time may come when India may have to import iron ore to meet demand from the domestic steel industry. According to experts, if the demand for iron and steel is on a par with that of China, domestic iron ore reserves will not last for more than one generation.
The Indian Bureau of Mines has estimated the country’s total iron ore reserves at 25 billion tonnes, which includes 14.6 billion tonnes of hematite and 10.6 billion tonnes of magnetite. The government wants India’s steel output to rise to 240 million tonnes (mt), double the target originally set in the National Steel Policy in 2007. At this speed, the country’s reserves will exhaust within a couple of decades and like China, we will also have to depend upon the import of steelmaking raw material, according to an analyst.
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As a rule, 1.3 tonnes high-grade ore is required to produce one tonne of steel. In case of low grade ore, the requirement could be higher. “We will lose market share. China will buy it from some other countries, as we cannot remain price-competitive with the duty going as high as 20 per cent. It has also created uncertainty in pricing, as the duty will not be brought down if the price of iron ore falls,” said Narendrakumar Baldota, chairman and managing director of MSPL, an iron ore mining and export company.
“Besides, it also does not serve any purpose, as Indian steel producers largely buy from state-run NMDC. For exporters of iron ore, production can also come down if the business becomes unviable,” he said. MSPL exports 5 mt of iron ore every year.
Abhay Lodha, chairman of the Topworth Group, a sponge iron producer, however, said the government’s proposal to raise the duty was a good move, as the industry would get more raw material for processing.
“Availability of more iron ore will mean more processing here, as is done in China. This will generate more employment, in addition to more value. Therefore, the government should discourage export of raw materials,” he added.
Currently, India produces around 220 mt of iron ore every year and exports close to 105 mt, largely to China. About 90 per cent of its exports are to China in the form of fines, while the remaining 10 per cent are iron ore lumps transported to countries like Korea and Japan.