The ailing iron ore sector has demanded complete removal of export duty and a 50 per cent cut in railway freight rates to make shipment easier to the Chinese markets.
China has stayed away from fresh booking of Indian iron ore, finding better offers from Australia. Apparently, Chinese demand has also weakened as the proposed infrastructure projects were completed before the Olympic Games in September 2008 and no new projects have been planned. Hence, the existing steel mills are operating with reduced capacity and closed units have been delaying their reopening.
According to market sources, China has cut steel production by 20 per cent, along with Japan and Europe. With the credit crisis hitting all economies, the demand for iron ore has reduced not only in China but across the world.
“Railway freight constitutes over 75 per cent of the current iron ore price of $55 a tonne. Adding an extra 15 per cent export duty makes the mining projects almost unviable,” said Rahul Baldota, president of Federation of Indian Mineral Industries (FIMI) on the sidelines of a seminar here today.
In June this year, the government levied a 15 per cent ad valorem export duty on iron ore with the benchmark 62 per cent of iron content. The aim was to discourage exports and boost availability for local players to help tame inflation which was feared to hit the alarming level of 13 per cent by October. Inflation was hovering around 12.44 per cent in June.
The railways were urged to double freight rates, with iron ore prices rising to $140 a tonne early this year. But, since the demand has reduced to ‘nil’, especially from China which consumes about 88 per cent of India’s iron ore exports, cutting export duty and reducing freight rates may bring India back in the competition, said R K Sharma, secretary general of FIMI.
India’s iron ore exports declined to just over one million tonnes in October 2008 as compared to 8 million tonnes in the corresponding month last year. If measures are not taken immediately, exports may decline to even ‘nil’ in the next five months of the year, Sharma added.
Iron ore remained volatile during the last two years with prices hitting a record $140 early this year but eased to $55 a tonne because of declining global demand on economic recession.
