Miners want PM to intervene in ad valorem talk

Concerned over reports of the steel ministry favouring 10-15 per cent ad valorem duty on export of iron ore, miners have sought Prime Minister Manmohan Singh's intervention to stall the move which could hinder the mining industry.

As iron ore prices are shooting up, an ad valorem duty structure would increase the incidence of duty. At present, the export duty is on the basis of ore content.

"India's share in China's total import of iron ore is just about 20 per cent and the bulk of the supplies, which sets the market trend, are from Australia and Brazil. Thus, ad valorem of existing duty would be detrimental to the health of iron ore industry," the Federation of Indian Mineral Industries (FIMI) said in a letter to the Prime Minister.

It pointed out that since February 2007, when the export duty was imposed on iron ore, there has been an increase in costs which had a bearing on iron ore exports.

While rise in export prices have compensated increased costs to some extent, the industry is apprehensive about its sustainability as current high export prices may be a short term phenomenon. Further, India's share in spot sales may go down as Rio Tinto now proposes to sell 20-25 million tonnes on spot basis, it said.

"There is a concerted misinformation campaign about soaring export prices by the domestic steel lobby, which desires iron ore at cheap prices.

A closer examination will reveal that high ocean freights from Brazil and congestion in Australian ports are driving up the iron ore spot prices. However, despite this, the exports to China are coming down due to the rise in mining and logistics costs in India," it said.

FIMI said since the imposition of export duty, the rupee has appreciated by more than 12.3 per cent vis-a-vis the US dollar. While rupee realisation has gone down, the cost of extracting iron ore has risen due to input costs.

"The net result is that margins for mine owners are squeezing day by day," it said. Rapidly rising freight charges in railways and ports was also cutting through their bottomline, the miners said.

"India is a minor player in world iron ore trade and thus takes advantage of the spot market and also of lower sea freight and haulage time as compared with Brazil to derive higher price realisation.

Iron ore resources have been increasing on an average of 300 million tonnes (MT) per annum over last 25 years and 600 MT per annum for haematite in last five years following intensive mining.

"Even if, for the sake of an argument, no new resources are discovered the present reserves would last 100 years at 110 MT steel production," it argued.

"We would like to submit that despite increase in spot prices, the net margin with the industry, after paying all the taxes and absorbing increase in logistic and mining costs, does not warrant any increase in export duty," the Federation said.