Indian iron ore export duty to hit demand -industry

June 20, 2008

June 20th (Reuters) – Indian iron ore exporters say a new 15 percent export duty export will undermine demand for their shipments in China, their main market, at a time when falling spot market prices were already pressuring their margins.

The government imposed the uniform duty last week, replacing a fixed levy of 50 rupees ($1.17) per tonne on lower grades of iron ore and 300 rupees per tonne on higher grades, saying it was ensure supplies at a reasonable price for domestic industry.


“As it is, China is refusing to buy from us as they are getting cheaper iron ore from Australia,” said Rahul Baldota, president of the Federation of Indian Mineral Industries.


The levy would add at least 400 rupees to 600 rupees ($9.30-$14) per tonne on medium-grade iron ore which sell for about 4,500 rupees to 5,500 rupees per tonne, Baldota said.


India exported about 93 million tonnes of iron ore in the fiscal year ending March 2007, and most of it went to China. National data for 2007/08 is still being compiled.


“It will hit us all the more as (spot market) prices are coming down,” said Swaminathan Sridhar, executive director of Goa Mineral Ore Exporters Association said.


Exporters in the western state of Goa, the source of about one-third of India’s iron ore exports, expect exports to fall 5-6 percent in the fiscal year to March 2009 from 39 million tonnes in 2007/08, Sridhar said.


Stockpiles at Chinese ports hit an all-time high of nearly 80 million tonnes last month, leading to a slowdown in demand and a fall in Indian iron ore prices by 8-11 percent last week.

Baldota said the landed cost of Indian iron ore, which is mainly sold on a spot basis, was already about $30 a tonne more expensive than Australian ore in the Chinese market.


Higher railway freight rates and an anticipated change in royalty rates for ore mining would push up costs more, he said.


Global miners Rio Tinto (RIO.L: Quote, Profile, Research) (RIO.AX: Quote, Profile, Research) and BHP Billiton (BHP.AX: Quote, Profile, Research) (BLT.L: Quote, Profile, Research) are trying to get better long-term contract prices from Chinese steel makers than the roughly 70 percent increase won by Vale (VALE5.SA: Quote, Profile, Research)(RIO.N: Quote, Profile, Research), but Indian firms are not expected to get such rises in the spot market now.


The tax changes mean Indian exporters would have to settle for less than the 65-80 percent price rises they were looking for said Vishal Maniyar, a research analyst at Karvy Comtrade.


“I see prices going up by no more than 40 percent to 50 percent,” Maniyar said.


NMDC Ltd (NMDC.BO: Quote, Profile, Research), India’s leading state-run miner, is expected to announce prices later this month, which will set the trend for other exporters, he said.


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