India May Raise Export Tax on Iron Ore to 20%

India, the world's third-largest iron ore exporter, is considering raising export taxes on the steelmaking raw material to 20 percent to increase local supplies and curb domestic costs of the commodity.

The finance, mines and trade ministries will discuss the steel ministry's proposal at a meeting today, Steel Secretary Atul Chaturvedi said in an interview in New Delhi.

"It's my feeling the export tax will be raised to a uniform level of 20 percent," Chaturvedi said. "If China can take steps to cool down prices, why can't we?"India in December imposed a 5 percent duty on exports of iron-ore fines and doubled the tax on lump ore to 10 percent. The measure slowed exports this year after overseas sales, mostly to mills in China, jumped 24.5 percent in the April-to- November period last year.

"In the short term, it should restrict some supply and potentially squeeze the spot price higher," Gavin Wood, an analyst at Nomura Holdings Inc. in London, said by phone. "It would encourage people to buy while material is available."
India in December suspended operations at 60 illegal mines to curb unlawful production in states such as Orissa and Karnataka, Mines Minister B. K. Handique told lawmakers this week in a written reply to questions from parliament.

Cap Increases

"Illegal mining has been the trigger for revisiting the proposal because it is believed a large part of this iron ore finds its way to the export market," Chaturvedi said.

Iron ore spot prices, trading at a 21-month high, may drop about 30 percent in coming weeks on concern China is taking steps to slow the pace of economic growth, UBS AG said.

Cash prices for 63 percent iron ore shipped from India to China, the biggest buyer, may drop to $130 a dry metric ton including freight, UBS Sydney-based analyst Tom Price wrote yesterday in a report. The ore traded at $186 on April 16, the highest since July 25, 2008, according to Metal Bulletin.

The steel ministry will meet India's biggest steelmakers today to discuss prices and may urge them to cap increases, Chaturvedi said. Prime Minister Manmohan Singh's administration is trying to rein in inflation, which is at a 17-month high.

"If the rising trend continues and crosses a particular threshold, there will be a cause for concern," he said.

"Firm Prices"

Tata Steel Ltd., Steel Authority of India Ltd. and JSW Steel Ltd., the country's top three producers, increased steel prices in January, March and April as the government's push to build more roads, ports and bridges boosted sales. Demand is also rising as carmakers such as Volkswagen AG and Ford Motor Co. target consumers in India and China as disposable incomes rise in the world's two fastest-growing major economies.

"Demand is good right now and there can be a tendency of prices remaining strong," Steel Authority Chairman S. K. Roongta said in an interview yesterday. "China will also be a major factor. Demand is good there and if they are not a major net exporter, the prices should remain firm."

The sale of shares in Steel Authority, the nation's second- largest producer, is unlikely before October as the government is planning to reorganize the board to meet regulatory requirements, Chaturvedi said.

The ministry is planning to reduce the numbers of members on the board to 18 from 24, Chaturvedi said. The government, which owns 85.8 percent of New Delhi-based Steel Authority, will sell a 10 percent stake, while the company will sell new shares equal to 10 percent of the enlarged capital. The sale will be made in two equal phases.

"We will complete the sale in the current financial year," Chaturvedi said, referring to the first phase.

India plans to raise as much as 130 billion rupees ($2.9 billion) selling shares in Coal India Ltd. in July, in the nation's biggest initial public offering, two government officials with direct knowledge of the sale said on April 20.