India’s Iron Ore Problem: Supply Vs. Taxes

16 January 2017

After more than four years of languishing, some hope’s been rekindled in India’s iron ore mining sector.

Ore production jumped 22% between April and October, according to figures released by the government. Iron ore production stood at 100 million metric tons during the resurgence, against 81 mmt during the same April to October period a year ago. What’s brought even more cheer is the news that exports, too, jumped 9 times their previous level, to 9 mmt from last April to September, as compared to 1 mmt, the same period last year.

The protectionist measures imposed by India’s government previously included an export duty tax of 30% on high-grade iron ore. Many within the mining sector are of the opinion that the export tax must go, or at the very least be reduced, to boost exports.

India exported 5.4 mmt of iron ore in all of 2015-16, and the figure is likely to go up in 2016-17.

In addition to the 30% duty, the government of India also imposed a 5% levy on pellet exports in January 2014, leading to a capacity drop to as low as 30%, and the closure of a number of export-oriented units. There’s also a longstanding duty of 10% on the export of ore with iron content of up to 58%.

The Federation of Indian Mineral Industries (FIMI), a representative body of ore miners here, has demanded the removal of this duty. Most of the iron ore exports, largely of low-grade ore from mines in provinces like Goa, seem to be headed to China. Obviously, Indian miners would like to expand their exports, especially of high-grade ore, to markets as far away as North America.

China consumes over 70% of the world’s seaborne iron ore. Some have estimated that despite a slowdown there, the People’s Republic may import 1 billion mt of the steelmaking raw material.

The iron ore price has moved up from $40/mt to $70/mt in global markets in the last few months.

Because of multiple problems, including legal cases, India lost its position in the global iron ore market about four years ago. Producers from Brazil and Australia such as Vale SA, Rio Tinto and BHP Billiton have happily stepped into the space vacated by Indian ore exporters, even doubling doubling down on capacity expansion and increasing seaborne ore supply.

So, until India sorts out its export and tax problems that involve the iron ore sector, steel companies in places such as China, Australia, Europe and even far away North America may not be able to get their hands on ore from India.

Another problem for the domestic miners is growing stock but less domestic consumption. Its yet another reason why they want to get exports going.

Data from the Indian Bureau of Mines shows the total stock of ore at the end of July was 144.5 mmt. 70% Of that total comprises ore with content below 62% in both lumps and fines.

The various export duties are simply getting in the way of ore exports. The sector is looking forward to the country’s annual budget announcement where the government may lower the export duty to boost the trade.

Source – Investing.com