By Debarati Roy and Jesse Riseborough, Bloomberg
Mumbai: Sinosteel Corp, China’s second-biggest iron-ore trader, said it stopped buying iron ore from India after the government imposed a $7 (Rs311) a tonne tax on exports of the main steelmaking raw material.
“The tax makes Australian ores more competitive,” Hong Sen Wang, managing director of the Indian unit, said by phone today from New Delhi. “We will reverse our decision as soon as the government takes the necessary steps.”
Indian mining companies estimate the tax proposed last week will halve iron-ore exports in the year to March 2008, boosting sales for producers in Australia. The government wants to curb exports to ensure there’s enough to meet demand from steelmakers including Arcelor Mittal and Posco, who have announced plans to spend $21 billion on plants in the country.
“It increases the appeal of cheaper Australian iron ore,” said Mark Pervan, head of research at Daiwa Securities SMBC in Melbourne. “Australia sits on the doorstep of the Asian market. Brazil is unfortunately on the other side of the world.”
‘Push Up Prices’
Lower imports from India may raise prices in China, which buys about half of the world’s exported iron ore. India sold 74 million tonnes to China in 2006, 84% of the nation’s total. Sinosteel buys 10 million tonnes a year from India, Wang said.
“Though the cost increase of importing Indian iron ore will mostly affect medium and small-sized Chinese steel mills that rely on the spot market to feed their demands, it will undoubtedly push up domestic iron ore prices,” said Macquarie Research Commodities in a note dated 2 March.
The duty, proposed on 28 February as part of the budget, must be ratified by parliament before it can be imposed.
Australian iron ore accounted for about 40% of the 326.3 million tonnes bought by China last year. Brazil, which sold 76.4 million tonnes, was the second-biggest supplier followed by India, Macquarie said.
“Australian iron-ore producers sit in the box seat given they are selling iron ore to China at $20 a tonne cheaper than the Brazilian and the Indians,” Pervan said.
Exports from India, which holds the world’s fifth-largest iron-ore deposits, may fall by half in the year ending 31 March 2008, from an estimated 100 million tonnes this year, according to the Federation of Indian Mineral Industries.
Shipments from India’s eastern ports have stopped because the tax cancels the Rs200 a tonne that exporters earn, said Siddharth Rungta, vice chairman of the Federation. Ports of Paradip, Haldia and Vizag in east India ship 19 million tonnes a year, a fifth of the nation’s total iron-ore exports.
Sesa Goa Ltd, India’s biggest non-state iron-ore exporter, said 1 March the proposed tax will lower profit in the year to 31 March 2008, by Rs1.8 billion. Sesa, 51% owned by Mitsui & Co., may report a Rs6.98 billion profit this year, according to a survey by Thomson Financial.