Ore duty adds sheen

BUDGET & BUSINESS

STEEL: The slapping of export duty on iron ore is a boon for the industry as it will improve domestic utilisation and bring down prices.

THE MEASURES
The Budget has proposed an export duty of Rs 300 per tonne on iron ore and concentrates and Rs 2,000 per tonne on export of chrome ore and concentrates.

It has proposed a reduction in duty on seconds and defectives from 20 per cent to 10 per cent.

THE CONTEXT
Iron ore prices have been ruling high owing to low availability. Last year, as much as 89 million tonne iron ore was exported, against the total production of 155 million tonne. As allocation of captive mines took time, steel companies faced obstacles to growth.

The conservation of mineral wealth and value addition in the country have been important issues, with Tata Steel Managing Director B Muthuraman often advocating a ban on iron ore exports.

The main inputs dragging the bottom lines of steel companies have been iron ore and coking coal. Steel companies have to import low-ash coking coal and blend it in India since domestic coking coal has high ash content "� about 25 per cent, compared with only 4 per cent in Australian grades. Steel prices have been rising, which could hurt secondary-steel producers and consumers.

THE IMPACT
The slapping of export duty on iron ore is a boon for the industry as it will improve domestic utilisation and bring down prices. Importers of Indian iron ore will now have to pay Rs 300 per tonne more, over and above the 9.5-10 per cent increase in annual iron ore contracts, on an average ex-mines price of Rs 2,000 per tonne.

The higher price is expected to whittle down exports significantly and the industry feels this is just the beginning. The Hoda committee, appointed to draft a roadmap for the new National Mineral Policy, had recommended a duty of Rs 500 per tonne. In the same breath, it will be a negative for private sector mining companies.

"The levy of export duty on iron ore and concentrates is timely. It will be appropriate if the revenue so generated is utilised for developing infrastructure in and around mineral bearing areas... The finance minister has done well in recognising the need for skill upgradation of our workforce, an important issue for the industry, by initiating certain steps such as upgradation of ITIs, etc," said Steel Authority of India's Chairman S K Roongta.

The zero duty on coking coal, which accounts for half the raw material cost of steel makers, will improve the bottom line of steel companies.

However, the reduction in duty on seconds and defectives will not go down well with makers of primary steel. If the low-quality material comes into the market, it could create pressure on prices for the primary steel producers.

Ispat Industries Managing Director Vinod Mittal said the imposition of export duty on iron ore would check export of fast depleting natural resources. However, reduction on import duty on seconds and defectives would entice dumping of poor quality and pollutant material in the country.