India to Raise Duty on Iron Ore

Even as the world's third largest iron ore exporter, India is considering raising duties on shipments of all grades of iron ore to 20% from April 1, the country is also gearing up for another 35% slump in exports of iron ore. In the next fiscal year, exports are expected to be down to about 58 million tonnes.

At a meeting on March 14, 2011, R K Sharma, general secretary of the Federation of Indian Mineral Industries said that iron ore exports were set to fall to 90 million tonnes in the current fiscal year ending March 2011, from the previous year's target of 91.7 million tonnes.

On February 28, India's finance minister Pranab Mukherjee told Parliament about the purported tax increase. With half the iron ore being exported, Indian miners have been deeply impacted by the volatility in ore prices and freight rates.

Domestic steel levels in China have also been down for the past month.
According to China's General Administration of Customs, China's imports of iron ore fell 29% in February. Imports dropped to 48.64 million metric tonnes in February from 68.97 million tonnes in January.

Analysts have warned that India's tax increase could further cut China's iron ore imports. China's steel product exports fell 21% to 2.48 million tonnes last month from 3.12 million tonnes in January. Data from General Customs showed that the shipment was little changed from 2.49 million tonnes a year ago.

About 50% of Indian iron ore production is exported of which more than 80% is exported to China. China's import of Indian ore accounts for 15-20% of their total imports, according to market data.

Analysts said that freight cost have been at the centre of controversy for many players. The China Iron and Steel Association is also in discussion with several Australian miners about the stabilisation of freight charges to reduce volatility and keep costs stable, analysts said.

It may be recalled that the four decade old practice of annual benchmarking was changed to a quarterly process in March 2010, with Rio Tinto, BHP Billiton and Vale SA agreeing to it. BHP Billiton entered into monthly contracts, and market sources said that sharp volatility in iron ore prices had followed the decision.

Iron ore prices fell from $186.5 dry metric tonne in April 2010 to $117 dry metric tonne in July 2010. But prices have been climbing steadily ever since and reached $191 dry metric tonne in February 2011.

Traders are expecting a significant rise in export prices after April 2011. In order to ensure a steady supply, India's Jindal Steel and Power company has said that it will start iron ore exports from Bolivia's El Mutun mines in the next couple of months.

"We will begin the exports in this calendar year... In next 2-3 months, it will begin in smaller quantity,"JSPL vice chairman and managing director Naveen Jindal said.

The El Mutun mines are considered as one of the world's single biggest iron-ore deposits, and are said to have reserves of more than 40 billion tonnes. In 2007, the Indian company had entered into an agreement with the Bolivian government for its development.

The agreement included construction of a 1.7 million tonne per annum steel plant, a 6 million tonne per annum sponge iron plant and 10 million tonne per annum iron ore pellet plant, along with a 40-year contract to mine about half of the reserves of El Mutun iron ore mines.

The entire project is estimated at an investment of about $2.1 billion. Talking about the steel plant, Jindal said, "construction of the steel plant is on and will be commissioned by 2014."