Mumbai / New Delhi: Indian steel companies have renewed calls for fresh export duty increases on iron ore, drawing angry responses from the raw material suppliers that the move only seeks to manage local prices of the resource.
Talk of a duty hike to 15-20% from 5-10% that some expect as early as the budget next week has left traders worried, but steelmakers say it is essential to preserve the key resource for big steel capacity being planned in the country.
“We are exporting away our future. That ore will come back to us in the form of steel in future, because we will not be able to produce it here,” J.J. Irani, director at Tata Steel, the world’s No. 8 steelmaker, told delegates at an industry conference last week.
Steel demand in Asia’s third-largest economy has jumped 8% so far this fiscal year, trailing only China in growth, as construction accelerates and rising incomes fuel demand for homes, consumer goods and automobiles.
Indian demand for the alloy is likely to touch 60 million tonnes in 2009-10, underscoring its importance at a time worldwide consumption shrank and global steel output fell 8% in 2009.
Steelmakers say the country’s annual iron ore exports of 100 million tonnes, mainly to China, are sufficient to meet India’s steel output in a year.
S.K. Roongta, chairman of state-run Steel Authority of India Ltd (Sail), the country’s largest domestic producer of the alloy, said that consumption in India could grow 12-15%.
“We need to preserve our raw material resources for that situation,” he said.
Sesa Goa, India’s largest iron ore exporter, says curbs on the industry could force mine closures and job cuts, as well as a loss of foreign exchange earnings for the country.
“Independent iron ore producers have no allergy to supplying to domestic market. But where is the demand,” said P.K. Mukherjee, managing director of Sesa Goa, which is a unit of London-listed Vedanta.
“If you ban exports, what happens to the fines. Should we create mountains of fines,” he said, referring to a form of ore that is little consumed in India but much in demand in China.
Steel expansion, rising prices
Government and trade officials project India’s steel making capacity to reach 90-120 million tonnes by 2012, from 56 million tonnes produced in 2008-09. Almost every large steelmaker has outlined ambitious blueprints for growth.
Sail is aiming for 24 million tonnes by 2012 from 13 million tonnes now, while Tata Steel plans Indian output of 10 million tonnes by mid-2011 from 7 million tonnes. JSW Steel and Essar Steel eye 10 million tonnes each in a few years.
Roongta has said that India’s total capacity could reach 220 million tonnes by 2020.
Indian steel companies import most of their coal and the possibility of shorter domestic supplies of iron ore has them worried about margins.
“We are facing pressure from raw material suppliers to pay more. The steel industry cannot afford huge increases in raw material prices at this time,” Tata Steel’s chief financial officer, Koushik Chatterjee, said this week.
In December, the government doubled the duty on ore in lump form to 10% and slapped a 5% duty on fines after domestic iron ore prices climbed above $100 a tonne, up 50% from April.
The price has now hit $129 a tonne and traders said there was a possibility of the duty rising to 20%.
“It is a rumour at this juncture. But we do understand that the steel industry is trying to push so that they can purchase their ores at a lower price,” said Goa Mineral Ore Exporters’ Association secretary Glen Kalvampara.
India produced 222 million tonnes of iron ore in 2008-09 and exported 106 million tonnes. In the first eight months of the current year ending March, exports were up 23%, fuelling talks of export duty hikes.
“There is a strong risk of export duty being hiked,” said Prasad Baji, metals analyst at Edelweiss Securities.
“From the lowest duty structure at one point, we could be moving to among the highest rates in the world,” Baji said.