Ore export levy to hit steel production

The Federation of Indian Minerals Industries (FIMI), the representative body of iron ore producers, is preparing for a major confrontation with the government.

"The stoppage of iron ore fines export, not used by Indian steel makers, will result in a supply glut in the domestic market. As a result, domestic miners would stop activities, leading to tightness in supply of iron ore to domestic steel makers. If this happens, about 22 million tonnes of steel, produced mainly through the secondary route, would be badly affected," said R N Baldota, president of FIMI and executive director of MSPL.

The enhanced levy is likely to hit overseas shipments badly. Further, iron ore prices have declined by about 20 per cent globally in the last two months. Further, railway freight rates and royalty have surged 17 per cent and 10 per cent, respectively, in the last 45 days, further squeezing the margin for exporters.

Iron ore does not contribute to the wholesale price index. However, steel does. Still, the government levied 10 per cent ad valorem export duty on hot rolled coils and withdrew it on June 13.

"Why did the government not levy duty on steel producers, who showed better profits despite an economic slowdown?," asked Baldota.

India produces around 51 million tonnes of steel. But, to meet the rising demand for infrastructure development, the country imports about 2 million tonnes of special steel annually.

FIMI is set to meet government officials soon to apprise them of the impact of the levy.

"The export duty on all grades of iron ore is set to have an adverse impact on the industry as prices have already hit record lows in China," said Haresh Melwani of H L Nathurmal & Co, a Goa-based iron ore miner.

Miners with long-term commitments (contracts) would continue to enjoy better margins, said an official with a leading mining company.

India exports about 95 million tonnes of iron ore fines, largely to China. However, demand from the Chinese spot market has declined putting renewed pressure on exporters to look for alternative destinations.

An official of the public sector National Mineral Development Corporation (NMDC) said, "We export only 3-4 million tonnes on long-term contract basis. If overseas importers wish not to accept supplies then we will think of alternative destination."

He, however, denied possibility of mines being closed due to export levy. Those who have invested huge money in mining would continue to extract as much iron ore as possible with a hope of revival sooner or later, he added.