Plan to cut export duty hits steel sector barrier

Firms say only value-added products must go abroad, not the raw material, especially with planned additions to capacity

In a fresh bid to claim the entire local use of iron ore, the steel industry has protested at government’s proposed move to reduce export duty on the steel-making raw material.

In a representation to the ministries of steel and mines, Indian Steel Association (ISA), representing the latter industry, has urged the government to continue with a 30 per cent export duty on all grades of ore, to preserve natural resources for domestic use.

The protest came after a steel ministry official hinted at a relaxation in the duty. The government had already cut export duty on low-grade fines to 10 per cent early this year but continued with a 30 per cent levy on lumps.

“Iron ore as a natural resource is India’s strength and for sustenance, expand and development of the steel industry, it is essential to ensure adequate availability of ore, to meet (our) rising production. Any relaxation in export duty will be detrimental to this sector,” said H Shivramkrishnan, director (commercial), Essar Steel India.

Iron ore production is substantially lagging the growth of steel production. The former, shows steel ministry data, fell at a compound annual growth rate (CAGR) of 6.5 per cent in the past five years. Total iron ore output was 139 million tonnes in 2015-16, from 208.1 mt in 2010-11.

While, steel output during the period jumped by a 4.6 per cent CAGR, despite global economic slowdown and its impact on infrastructural spending in India, resulting in a sharp decline in its consumption. National output was 89.8 mt for 2015-16, as against 68.6 mt in 2010-11.

“Export should be of valued-added products, not the raw materials. The basic principle should be to earn revenue which would come from finished products, more than raw materials. India is a steel non-mature country (meaning steel consumption is low but rising). So, India needs steel for domestic consumption, unlike steel-mature countries (with no potential for consumption growth) like Japan, America, etc. For meeting our own consumption of steel, it is important to conserve iron ore to produce steel locally. We must focus on exports of value-added products like pellets, finished steel etc. No developing country with a growing economy dispatches raw materials,” said Sanak Mishra, secretary general, ISA.

Merchant miners actual realisation from iron ore export is Rs 1,550 a tonne, less than half the price of the landed cost of the imported commodity. With existing duty, India’s iron ore exports were six mt in 2015-16, against 11.3 mt of import.

Steel mills’ utilisation is averaging at 76-78 per cent of the installed capacity of 120 mt. A rise in utilisation would mean the ore requirement would rise proportionately. Also, the government’s aim is to add 180 mt of steel production capacity by 2025. This would require 290 mt of iron ore, over and above the existing requirement of around 140 mt, including 25 mt of pellet producers.

“Since iron ore mined by captive users like Steel Authority of India and Tata Steel is not available for exports, the entire quantity of shipment would come from merchant miners only, resulting in a huge shortage of the raw material,” said a senior industry official.