High costs hit iron ore exporters

In spite of high grade Indian iron ore (with ferrous content of 63.5 per cent) fetching a record $175 a tonne in the international market (up three times from last year's price of $62), exporters' operating margins in dollars have not risen in the same vein. Margins have only doubled to $51 from $26 in November last year.

If you add to this the negative impact of rupee appreciation, the US dollar has plunged to Rs 39.5 from Rs 45, exporters' operating margins a tonne in rupees is up 74 per cent or Rs 865, that is less than double.

"Though the iron ore price (in dollars) has risen by 182 per cent, the profit margin has not gone up proportionately due to various factors like spiralling sea freight, inland transportation and port handling costs, appreciating rupee and a new export duty," said Pradeep Wodeyar, managing director, Matha Minerals, a Bangalore-based iron ore exporter.

"This time last year, when the price of high grade iron ore was $62 a tonne, we could cover sea freight, transportation and port handling charges within $29 for each tonne. We were left with a profit of $26 (when the dollar exchange rate was Rs 45). Now, the profit on every tonne exported is $51. This does not includes the impact of rupee appreciation (which works out to over Rs 850 per tonne)," said an official of Mysore Minerals, a Karnataka government undertaking, which exports iron ore to China.

Of the current realisation of $175 a tonne, $46 goes towards sea freight charges, $34 towards inland transportation and logistics (including railway freight and stock yard congestion fee), $26 towards port handling, labour and stocking fee and around $7.50 for export duty. Plus, production costs have gone up from $7 to $10 a tonne.

In the last one month alone, the sea freight charges for iron ore transportation have risen drastically to $46 per tonne from $15 per tonne due to non-availability of vessels. Similarly, the Indian Railways has increased freight and stock yard congestion charges, and surcharges.

"Though there is tremendous demand for Indian iron ore, the profit margin has not risen accordingly. The actual price realisation is not encouraging since exporters are paying a lot towards other expenses," S B Chauhan, advisor to the Federation of Indian Mineral Industries, said.