China steel firms to stop ore imports

At least 10 steelmakers in China, including Baosteel Group Corp., the country's largest mill, have agreed to suspend iron ore purchases from India after it announced a tax on exports, an industry group said.

The new tax makes the steelmaking ingredient from India less attractive and China's mills should thus seek other supplies, Chen Xianwen, deputy director of market research at the China Iron and Steel Association said today. Zhang Dianbo, iron ore trading head at Baosteel Group, could not be contacted for comment.

On February 28, the government announced a tax of Rs 300 ($7) a tonne on iron ore exports in a bid to ensure that local supplies are sufficient to meet the domestic demand. The country provided 23 per cent of China's 326 million tonnes iron ore imports last year, making it the second largest supplier after Australia.

"We encourage the steelmakers to diversify their ore purchases and step up mining exploration," said Chen. "India's ore will be much less attractive."

Sinosteel Corp. and China Minmetals Corp., China's two largest metal and mineral traders, have said they have stopped buying India ore. China's iron ore inventories are enough to last for at least a month, the association's Chen said. The government-backed group is funded by the nation's biggest steelmakers.

Chen's comments came as the Federation of Indian Mineral Industries forecasted today that iron ore exports from India may tumble by 32 per cent this month because of the tax. India has the world's fifth largest reserves of the mineral.

Indian companies, including Sesa Goa, exported 4.98 million tons between March 1 and yesterday, and may ship a further 2.18 million tonnes by the end of the month, R K Sharma, secretary-general of the Indian association, said. Exports totalled 10.6 million tons in March 2006.

"There was uncertainty all around, and buyers and sellers were holding back," said A S Firoz, an independent steel analyst and former chief economist at India's steel ministry. "This could have led to lower exports in March."

"Shipments of iron ore from mines to Indian ports have completely stopped'', Sharma was quoted as saying from New Delhi. Whatever is going out at the moment, was already moved to the ports before the tax went into effect on March 1, he said.

"We've not heard anything yet from the Chinese buyers," D K Sahni, the president of the Federation of Indian Mineral Industries, said today. He added that this could well be a move to put pressure on Indian suppliers and government.

Finance Minister Palaniappan Chidambaram, who unveiled the new tax in his budget, said on March 16 that the government would consider the comments from the iron ore industry and may "take a suitable decision" on the tax.

"We are meeting everyone in the government who matter, to press for a rollback of the duty," Sharma said.

Firoz, an independent steel analyst, said, "There is a strong possibility that the government could lower the tax."

Exports of iron ore from India totalled 85.6 million tonnes between April and February, 9 per cent more than a year earlier, according to data collected by the federation.

India's steel usage is forecasted to rise by 7.7 per cent a year from 2010 to 2015, faster than the 4.2 per cent global rate in the same period, according to the International Iron & Steel Institute.