Levy brings down iron ore exports by 9 per cent

The country's iron ore exporters, who bank on Chinese buying mainly through spot sales, have started feeling the heat of exports duty levy.

In the second quarter, traders saw the full-fledged impact of the export duty, which was levied by the government in this year's budget. The country's exports declined by 9.09 per cent to 22.03 million tonnes in the second quarter of the current calendar year (April-June) as against 24.23 million tonnes in the corresponding period last year.

In the first quarter also, exports from the country witnessed a fall of around 1.6 per cent to 28.43 million tonnes compared with 28.89 million tonnes in the same quarter last year.

During the last financial year (2006-07), the country's total iron ore exports grew 6.4 per cent to 93.12 million tonnes from 87.51 million tonnes in the previous year.

"The impact of strengthening yen in Japan, which accounts for less than 10 per cent of India's exports will not have any major impact on the financial health of exporters as rupee is also appreciating at the same rate," said a trader.

Japan's import from India dropped to 86.32 lakh tonnes in 2006-07 from 103.25 lakh tonnes in 2005-06 because of cheaper substitute available from Brazilian markets.

"No foreign buyers wish to engage Indian iron ore exporters in long-term contracts because of anticipated harmful impact of steel lobby. The steel lobby in short is damaging the iron ore exports severely," said RK Sharma, secretary general, Federation of Indian Mineral Industries. The industry mainly shipped overseas on spot order basis, he added.

"Domestic steel producers neither want to use low-grade iron ore fines (below 62 per cent grade) nor they want us to exports heavily," alleged Sharma.

After levying Rs 300 a tonne export duty on iron ore, the government cut the duty to Rs 50 a tonne on low-grade, while the same was retained for high grade. Industry sources said that the duty cut would partly offset traders' worry as the low-grade iron ore forms only 25 per cent of the total exports.

However, after initial resistance on exports, ministry of mines toned down its stand by saying that a cap on exports would be unjustified as ore reserves had shot up by nearly 2 billion tonnes from the current 23 billion tonnes and that fines and low-grade lumps have no market in the country. The ministry has also opposed any ceiling on licensing or canalisation of ore export.

Chinese traders have started sourcing iron ore from alternative sources including Brazil as high Indian iron ore prices have started pinching them. India exports about 86 per cent of iron ore to China. They are in no mood to pay high to Indian traders despite global contracts for 2007 have gone up by 64 per cent.