Iran Moves to Impose Steep Export Duty on Iron Ore

Iran's government is negotiating a tax of up to 40 percent on iron ore exports to take advantage of a surge in sales to China, aiming to replace revenue from oil and other sources eroded by sanctions.

Iran's iron ore exports to top steel producer China jumped 48 percent in the first quarter from a year ago to a level that would generate annual revenue of about $3 billion at current prices.

The government is now talking with local miners about an export tax, trading and industry sources said.

"A few iron ore cargoes were earlier banned from leaving the port as the government is looking to impose a 40 percent export duty based on free-on-board prices," said a trader in Shanghai, who imports Iranian iron ore.

The negotiations may lead to agreement on a smaller number than 40 percent to enable miners to absorb the extra costs and continue selling, given fears that the tax could otherwise end up cutting Iran's exports.

"They are putting the tax in place because the government wants to get a share of the profit. Forty percent is outrageous, but I think eventually they will come down to a more reasonable number," a spokesman for the Iran Iron Ore association said.

Several attempts to contact the Iranian ministry of industries, mines and trade were unsuccessful.

Iran's revenue from exports of oil and other goods has decreased since the United States and the European Union imposed trade sanctions in an effort to pressure Tehran about its disputed nuclear programme. The sanctions have also cut the number of its potential customers for iron ore.

As for China, traders do not expect the duty to be much of an issue in a buyer's market. Chinese demand for steel has slowed recently, which has knocked iron ore prices to their weakest in almost six months.

Iran has grown in importance to become China's fourth-largest supplier largely because India, formerly a major supplier, has constrained exports in an effort to crack down on illegal mining.

Iran exported 5.68 million tonnes of iron ore to China in the first quarter, but that still amounted to only 3 percent of China's total iron ore imports.

By comparison, China took in 89.8 million tonnes in the first quarter from Australia, its top iron ore supplier, up 8 percent on the year.

"The heavy duty would have a much bigger impact on Iran's own export business, while China should not be affected too much," a second iron ore trader in Shanghai said.