Pellet makers seek excise duty cut, removal of distance based freight

Battered by steep prices of iron ore fines and high freight cost, pellet manufacturers have turned to the central government to help them stay afloat in a turbulent phase.

Globally, there is a sharp drop in prices of iron ore and steel, but in India, the price of iron ores are still significantly high, making it unviable for pellets and steel industries. International iron ore price is reduced from $140 in August 2014 to $38 per tonne at present with a drop of 73%, which is expected to decline further. On the contrary, Indian iron ore price is reduced from Rs 3000 in August 2014 to Rs 1600 per tonne at present with a drop of only 47%.

Deepak Bhatnagar, secretary general, Pellet Manufacturers' Association of India (PMAI) said, "The central government needs to come out with immediate interventions like moratorium on interest and principal amount payment for at least three years, removal of five% export duty imposed on pellets, time extension of export obligation period under EPCG (Export Promotion Capital Goods) scheme for at least five more years & waiver of interest on export obligation amount."

"The pellet industry can be incentivised by providing 50% cut in excise duty and removal of distance based charge of Rs 300 per tonne imposed on export of pellets", Bhatnagar said in an e-mail response.

Of the14 pellet units in Odisha, 12 have already shut their units with a total installed capacity of 25 million tonne per annum. The present pricing of fines & lumps have resulted in closure of pellet industry. Fines generation, which generally occur 70-75% of total iron ore mining, is being un-utilized and stacked in the mines.

Prices of iron ore lumps have corrected in the range of Rs 300-700 a tonne. Fines prices, on the contrary, were hiked by Rs 200 per tonne, impacting the pellet manufacturers. Pellet, an intermediate product in steel making competed with lumps. But with the crash in lumps prices, buyers were cautious on pellet purchases. Iron ore pellets, is a value-added manufactured product, whose cost of production is around Rs 4500-5800 per tonne (excluding taxes), is presently competing with mined iron ore lumps & calibrated lumpy ore (CLO), whose cost of production is below Rs 500 per tonne (excluding taxes).

In the current scenario, the minimum landed cost of fines 62-65% Fe) is Rs 2207 per tonne for freight distance of up to 25 km and Rs 2347 a tonne for 50 km.

Presently, the capacity utilisation of pellet plants in the state stands at 45%. Full capacity utilisation of all pellet facility promises a royalty gain of Rs 843 crore for the state.

On the other hand, closure of the pellet plants is likely to cause revenue loss of Rs 1963 crore (Rs 361 crore of state taxes and central taxes worth Rs 1601 crore). That pellet apart, closure of the pellet plants would impact livelihoods of more than 30,000 families.