Singapore: The government may replace the flat tax on export of iron ore with one linked to the grade of the mineral after some Chinese steel makers boycotted purchases of the commodity.
“The government could restructure the tax in terms of iron-ore grades where a lower grade may have a reduced duty with some adjustments for higher grade ore,” A.S. Firoz, an independent steel analyst and former chief economist of the steel ministry, said on Wednesday in Singapore.
India had announced a tax of Rs300 per tonne on 28 February to ensure supplies are enough to meet domestic demand. The new tax has prompted at least 10 steel makers in China, including Baosteel Group Corp., the country’s largest, to halt purchases from India, an industry group said. Iron-ore exports may drop by 32% this month because of the levy, according to the Federation of Indian Mineral Industries Ltd.
A lower tax on iron-ore fines, a grade which has a lower ferrous content and accounts for 85% of India’s exports of the mineral, may deter Chinese mills from seeking more supply from Australia and Brazil. India was the third-biggest supplier to China last year, providing 23% of 326 million tonnes (mt) of imports by the world’s biggest steel-producing nation.
“China needs a lot of iron ore and can’t afford not to buy from India as it takes a while to mine and to find substitutes,” said Firoz. Chinese steel makers may import 4.3% more iron ore this year and 7.4% in 2008, Citigroup Inc. said.
Union finance minister P. Chidambaram said on 16 March that the government would consider fresh comments from the country’s iron-ore industry and may “take a suitable decision” on the tax.
A panel set up by the government to overhaul India’s mining laws had suggested a tax on exports of high-grade iron-ore lumps, instead of fines, because of poor domestic demand for the latter. Steel Authority of India Ltd and Tata Steel Ltd, the country’s biggest producers, mine their own ore, forcing miners to export fines.
Out of every 100mt of iron ore produced in India, 60 tonnes are fines and the rest are lumps. India’s steel usage is forecast to rise 7.7% a year from 2010 to 2015, faster than the 4.2% global rate in the same period.