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Mines ministry seeks rollback of iron ore export duty hike

Sudheer Pal Singh  |  New Delhi 

Miffed at the imperfections in the domestic iron ore market created by the government’s decision to raise export duty on the commodity, the mines ministry has sought a rollback of the move. The high export duty, coupled with the slump in international prices of iron ore, rather than easing domestic supply, is affecting production and availability, the ministry has argued in a letter to the finance ministry.

Iron ore exports attracted a 5 per cent duty until February 2011. The duty was hiked to 20 per cent in the Budget for 2011-12. In order to further conserve the major mineral, at the back of allegations of rising illegal trade fuelled by high global prices, the government hiked the duty to 30 per cent for all grades effective 30 December 2011.

The mines ministry argues that not only have the global prices come down to $111 per tonne from $172 per tonne in August last year, railway freight rate also jumped from an average of Rs 1,176 per tonne in 2009-10 to Rs 2,657 per tonne in 2011-12. The export duty hike at such a time has acted as a double whammy for the miners. Exports of iron ore declined by more than a half from 123 million tonne (MT) in 2009-10 to 57 MT last financial year.

  • The high export duty , says the mines ministry, rather than easing domestic supply, is affecting production and availability
  • 5% export duty was levied on iron ore till February 2011 which was raised to 20% in 2011-12 budget
  • Global prices have slided to $111 per tonne from $172 per tonne in August last year
  • Problem has been compounded by the limited storage capacity for fines, the powdered form of the ore

The problem has been compounded by the limited storage capacity for fines— the powdered form of the ore— which is generated during the processing of the ore. Three tonne of fines are produced during the processing of every tonne of lumps. Fines account for 60 per cent of India’s total ore production. Due to limitation on the area available for stacking fines, miners are forced to reduce production if fines are not removed from lease area.

With the increase in export duty on fines and higher rail tariffs, viability of export of fines has declined leading to increase in mine head stocks from 88 MT in 2010-11 to 104 MT in 2011-12. This, in turn, has adversely affected the production of iron ore lumps. Since a majority of the domestic steel industry, particularly the sponge iron producers, is dependent exclusively on lumps and do not consume fines, it is facing a shortage of lumps. As an alternative, these industries have turned to importing pellets.

According to the mines ministry, there would not be any requirement of import of lumps or pellets at all, if the export duty on fines is rolled back to 5 per cent on ad valorem basis reverting to rates existing before 28 February 2011.

“The reduction of export duty would facilitate disposal of fines from mine heads and restore iron ore production. This would automatically increase the supply of lumps to domestic sponge iron units,” the ministry has said in its letter.

Iron ore exports accounted for 50 per cent of the 213 MT of India’s production of the mineral in 2008-09. The share of exports jumped marginally to 54 per cent of the total production of 219 MT in 2009-10. In 2010-11, share of exports slid again to 50 per cent of the overall 208 MT iron ore produced. India produced 116 MT iron ore last financial year (2011-12), of which around 57 MT was exported.

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First Published: Sun, August 05 2012. 00:50 IST