Pellet makers oppose 5% export duty levy amid falling domestic demand

21-January-2019

Pellet manufacturers across the country are stoutly opposed to a proposal to levy five per cent export duty amid shrinking demand for the product in the domestic market.

Domestic demand for iron ore pellets has waned significantly over the past few months. This is because downstream steel makers and DRI plants opt for iron ore whose prices have softened. Moreover, pellet, an intermediate product in steel making is in direct competition with iron lumps – the latter being cheaper are mostly used in blast furnaces of steel mills. In such a backdrop of fragile domestic demand, the only outlet for pellets is the export market. And, pellet makers feel export duty will blunt India’s competitive edge.

“Levy of export duty will adversely affect export of pellets as they would lose out on international cost competitiveness. This is another key reason why levy of export duty on pellets is not desirable for the survival of pellets industry,” Deepak Bhatnagar, secretary general, Pellet Manufacturers Association of India (PMAI) noted in his letter to Binoy Kumar, Union steel secretary.

PMAI has also pitched for levy of import duty on iron ore lumps to ensure that equivalent quantity of pellets is absorbed by the steel industry. To justify its demand for import duty, the association said, the country imported 8.7 million tonnes of iron ore in last fiscal, 47 per cent higher than FY17. In this fiscal, iron ore imports have soared 178 per cent to 8.5 million tonnes till October, making the country a net importer of the raw material.

India is currently the world’s fifth largest pellet producer. Pellet making capacity in the country is 85 million tonnes per annum (mtpa). The capacity has been created with an investment of Rs 35,000 crore, generating employment for over 100,000 persons. In 2017-18, the country produced 59.6 million tonnes, representing capacity utilisation of 70 per cent. Pellets manufactured were primarily consumed within the country and 15 per cent of the output or 8.95 million tonnes were exported.

Despite operating below the rated capacity, pellet plants have helped in domestic value addition to 68.5 million tonnes of iron ore fines. Pelletisation of the lower grade fines resulted in Rs 2,513 crore collection by way of royalty, District Mineral Foundation (DMF) and National Mineral Exploration Trust (NMET). The domestic pellet industry helped realize foreign exchange of $984 million, assuming an average export price of $110 per tonne of pellet in FY18.

Over the last few years, the Government of India has salvaged the domestic pellet industry by waiver of five per cent export duty and rationalization of railway freight structure. However, the possibility of reviving export duty on pellets has rankled the producers.

“Pellet exports have been encouraged by the Government of India and we would like to see continued support with steps that give further impetus to pellet production in the country…. We accordingly request the steel ministry to promote pelletization in India, both for domestic and export of surplus production so that pellet plants in India are able to achieve full capacity utilization so that the huge capital investments could be justified,” the letter from PMAI stated.

PMAI feels that in view of throttled consumption of pellets in the domestic market, export of pellets has become a necessity for survival of the industry.

Source: BUSINESS STANDARD