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Steel ministry wants higher duties to check ore exports

Steel ministry wants higher duties to check ore exports
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First Published: Wed, Jan 02 2008. 11 31 PM IST

A truck being loaded with iron ore at a mine in Orissa. Mineral-rich states want an export ban to help the local steel industry
A truck being loaded with iron ore at a mine in Orissa. Mineral-rich states want an export ban to help the local steel industry
Updated: Wed, Jan 02 2008. 11 31 PM IST
To keep raw materials to supply India’s building boom within borders, the steel ministry has proposed a stiffer levy on iron ore exports in the next budget.
The proposed duty to curb exports would be based on current freight on board prices, replacing a system of fixing specific rates on every tonne shipped out of the country.
A truck being loaded with iron ore at a mine in Orissa. Mineral-rich states want an export ban to help the local steel industry
The new pre-budget recommendations sent to the finance ministry last week propose a 10-15% ad valorem (or by value) duty on export prices of the commodity key to steel making. The finance minister is expected to deliver the budget on 29 February.
“The current duties have had no impact as iron ore exports continue to grow with rising prices,” said a steel ministry official who did not want to be identified. “The tax payable under the new duty structure will change with fluctuating prices.”
Last year, the government introduced ore-grade specific duties of Rs50 to Rs300 a tonne to prevent exports, but iron ore prices have shot up nearly 53% in the past 12 months. Chinese freight on board prices have risen from $60 (Rs2,364) a tonne last January to $130-135 a tonne in December.
India meets 14% of the world supply of iron ore after Brazil and Australia, which hold a 36% share each. More than 80% of India’s iron production is exported to China, the world’s biggest steel producer.
On 1 January, China introduced a new export duty to deter overseas sales of coke (or metallurgical coal), another key raw material used in making the alloy. The world’s biggest coke supplier introduced a duty of 25% on the commodity, up 10% from June 2007. It has also increased the levy on pig iron, an intermediary raw material and ferro alloys by 25% and 20%, respectively.
Observers say China’s recent duties put more pressure on India to provide natural resources, especially to fellow developing economies. With growing demand for steel worldwide, raw materials such as iron ore have seen steady price increases. Meanwhile, domestic steel producers and iron ore miners battle to secure their materials, even as mineral-rich states demand a ban on export to help the domestic steel industry flourish. To these regions, the steelsector represents massive employment.
India’s coke import from China, the world’s biggest supplier of the commodity, has grown a little more than 6 million tonnes, according to the Indian Metallurgical Coke Manufacturers’ Association. India also imports 19 million tonnes of coking coal, the raw material used to make coke, but many medium and small steel producers who do not have ovens to make coke depend on China’s supply.
“In the short term, there will be raw material shortage. If steel prices go up further, coke prices will rise as well,” said Arun Kumar Jagatramka, vice chairman and managing director of the publicly traded Gujarat NRE Coke Ltd, one of the country’s largest private coke producer.
As many companies scour the world to secure coke, Gujarat NRE has acquired the Elouera mine from multinational mining company BHP Billiton Ltd in Australia. The coking coal will be imported to its Indian plants to make coke to meet rising domestic requirement from next month. With additional duty, coke prices, he said, would range between Rs16,000 and Rs19,000 a tonne in the coming months. Last month, the price was Rs15,000.
While rising costs of raw materials are a matter of concern, analysts also predict steel prices will climb $40 a tonne this year, despite a US slowdown and signs of declining momentum in Europe. Average market price of steel in India isRs27,000 a tonne.
“Indian steel prices will move in the same range and see an increase of Rs1,600 a tonne,” said Rakesh Arora, associate director at Macquarie Securities (India) Pvt. Ltd.
Consequently, integrated steel players are bracing for price hikes this month. But cold rolled producers, which purchase hot rolled coilproducts to make steel sheets for automobiles and refrigerators, want the government to emulate China’s export duty programme.
In its budget proposal for the government, the Cold Rolled Steel Manufacturers’ Association of India has demanded that the government impose a 5% duty on hot rolled coils freight on board prices. China imposed an export duty of5% on hot rolled coils andhot rolled sheets in June last year and increased duty on wire rods and bars to 15%this month.
India does not impose any duties on steel exports.
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First Published: Wed, Jan 02 2008. 11 31 PM IST