Bangalore/New Delhi: India’s iron ore exports are likely to drop owing to a steep hike in the export duty followed by a railway freight increase on Thursday, but chances are exports might pick up in about two months as China’s appetite for the steel-making ingredient is expected to stay strong, exporters said.
“I don’t think Indian exporters can absorb these kind of hikes. And China will not raise the price because India’s contribution to China is small,” said Satyajit Singh, director, marketing, of Sinosteel India, a Chinese trading house in New Delhi. “It may take a month or two for the market to adjust to these changes.”
Temporary lull: A file photo of iron ore stockpiled near Marmagoa Port in Goa, waiting for export. Santosh Verma/Bloomberg
India is the world’s third largest supplier of iron ore, shipping around 100 million tonnes of the resource, or about half of total production, mainly to China that is home to the world’s largest steel industry.
India has a sizable iron ore trade comprising at least 100 exporters, with companies such Sesa Goa, Essel Mining and Rungta among the big companies.
On Monday, finance minister Pranab Mukherjee raised the export duty on iron ore to a flat 20% from 15% on iron ore lumps and 5% on iron ore fines, in keeping with demands by the steel industry wanting more supplies of iron ore at low costs.
As if on cue, the Indian Railways, which has made several upward revisions in freight costs in the past one year, increased freight charges by Rs 100 a tonne on Thursday, citing the need to take advantage of the bullish iron ore market.
A Bhubaneswar-based exporter said the hikes had stumped the market and trades had nearly stopped, with Indian exporters offering discounts, but Chinese buyers choosing to wait and watch.
Exporter Dhruv Goel of SKTC said benchmark ores with 63.5% iron content, were quoting at $184-185 a tonne with freight on India’s eastern coast on Thursday, down from $188 a day ago.
The two hikes are the latest setbacks to the mining industry that is already facing a shortage of exportable iron ore owing to a ban on exports of the commodity imposed by Karnataka in July last year.
Exports have dropped, even as a petition by some exporters in the Supreme Court challenging the Karnataka ban, is being heard.
Iron ore exports in April 2010-January 2011 were at 75.11 mt, down 18% from 91.71 mt a year ago, data from the Federation of Indian Mineral Industries (FIMI) show, a decline attributed to the ban in Karnataka.
“The budget proposal is counter-productive,” said R.K. Sharma, secretary general at FIMI. “ The higher export duty will make Indian iron ore uncompetitive in the global market and lower exports.”
Exporters said Chinese demand is expected to revive from a temporary lull being seen currently.
“Even with the hike in duties, Indians will be able to sell to China,” said Manish Pande, regional manager of CRU Strategies in Mumbai.
China’s iron ore imports are pegged at about 600 mt in 2011, a drop of about 3% from the 618.6 mt it imported in 2010, according to China’s industry ministry.
Sinosteel’s Singh said Indian exporters would wait for international prices to harden, or for local mining companies to reduce their prices of iron ore before they start to export again.
“The current lull in Chinese buying is just a correction as port stocks are too high,” said another iron ore trader in a large international trading house, who declined to be named. “Their economy is still doing well and they will need the steel.”
Analysts say that in the long term, India’s iron ore exports could taper off with more steel capacities coming up locally and iron ore miners setting up pelletization plants to add value to their iron ore as a means to diversify their risk.
Also, the incentive provided by Mukherjee in the budget for exports of iron ore pellets, could change India’s export basket mix where some of the iron ore would be replaced by pellets. Mukherjee announced that exports of iron ore pellets would be totally exempt from any duty.