Iron ore miners say export duty cut not enough

Blame higher rail freight rates, poor global demand

Talk of reduction in the iron ore export duty has received lukewarm responses from leading mining companies and others in the sector, as many believe it’s not enough.

Exporters currently pay 30 per cent duty on the sale price, up from five per cent three years earlier. A cut in this is being considered. However, among the other problems are high rail freight cost and poor global demand, coupled with local factors.

“The government should also take steps to reduce rail freight,” said Basant Poddar, head of the Karnataka chapter of the Federation of Indian Mineral Industries (Fimi).

Indian Railways charges Rs 2,500 for each tonne of iron ore meant for export, much more than the charge for sale within the country. Along with a duty cut demand, Fimi has been asking for a reduction in this charge.

POOR RESPONSE

• Miners say orders on priority for local steel mills would ensure tightness in export supply
• Higher rail freight for iron ore exports do not make it a lucrative business
• Iron ore export prices have come down from $140 a tonne in April to $114 at present
• Export duty is at 30 per cent, might come down to 20 per cent of FOB
• Commerce and finance ministry are in consultation to reduce export duty to soften current account deficit

Also, says Fimi, the local factors are substantial. Karnataka used to be the largest state for iron ore export until the state government imposed a ban on this in 2010. Though the Supreme Court has allowed export, only 12 of 107 mines are currently in operation, leaving limited space for outbound shipments.

“By the Supreme Court order, the mining companies have to first cater to local steel plant demand and then go for export. Once all the mines are reopened, exports will gradually (again) reach the peak in two to three years,” said Poddar.

After the export ban in Karanataka and the curb on iron ore mining in Goa, east Indian ports have assumed top positions in terms of export. A major part of the 17-million tonne export over a year is being shipped from east coast ports such as Paradip, Haldia and Vizag, with Odisha contributing about 4.5 mt.

However, the rate cut would not boost exports from east India. “In Odisha, about 40 mt of iron ore fines are stacked with private miners. But due to a policy of the local government, we can sell only half the amount to outside parties and the rest should be kept in reserve for local companies. Hence, there will not be any major change in export numbers,” said Prabodh Mohanty, spokesperson for the East Zone Mining Association, representing 60 companies of the state.

Large exporters said sluggish global demand will be another factor in thwarting a rate cut impact. “In 2008-09, India used to supply 21 per cent of China’s demand; now it is below five per cent. Even if the duty is cut to 20 per cent, higher rail freight and poor rates will ensure tightness in the market. The business is no more lucrative,” said an official of a large iron ore exporting firm in Odisha.