India Iron Ore Exporters Hope Tax Cut Will Revive China Demand

Indian iron ore exporters are hoping for a revival in demand from their biggest market, China, to push volumes, following a reduction in domestic export taxes announced Sunday, but China has already commenced talks with top global iron ore producers seeking a significant reduction in prices.

India's federal government Sunday scrapped the export duty on iron ore fines and cut the duty to 5% on lumps to help the local iron ore industry compete overseas, as demand has dipped sharply in the last couple of months.

India exported 104 million metric tons of low and medium-grade ore in 2007-08 - mostly to China, but exports have now been hit by falling demand.

Meantime, a top Chinese steel industry official said Monday China was pressing iron ore producers to accept 1994-level prices commensurate with the extent steel prices have dropped.

"Steel prices have fallen to 1994 levels, so why shouldn't iron ore prices do the same?" asked Shan Shanghua, secretary-general of the China Iron and Steel Association. "We will definitely be asking for a decrease, and it won't be small."

Returning to 1994 levels could mean a roughly 80% decline from today's terms.

India's government has already projected iron ore exports will fall to 70 million-80 million tons in 2008-09.

China's steel industry, which had been reporting a 60% annual growth in recent years, saw output fall 17% on year in October, the sharpest in a decade.

"We have to wait for demand to pick up," Glenn Kalavampara, secretary of the Goa Mineral Ore Exporters' Association, said.

The western state of Goa is the center of India's iron ore exports. It exported 33 million tons of iron ore - mostly fines - in 2007-08.

"There have been a lot of inquiries, which we hope will translate (into sales)," Kalavampara said, adding the picture wasn't as gloomy as a month ago.

He expects iron ore exports from Goa to reach 25 million-26 million tons in 2008-09.

Lower shipping rates have offset the advantage Indian ore enjoyed compared with ores from Australia and Brazil, as these are cheaper now on a cost-and-freight basis.

"We are seeing some renewed interest," said Rahul Baldota, president of the Federation of Indian Mineral Industries, adding the government needs to substantially reduce railway freight.

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