In Commodity News 05/05/2015
A decision by the Indian government to reduce the export duty on lower grade iron ore from 30% to 10% could potentially unleash some 10 million metric tons onto the seaborne market, sources said Monday, May 4.
India’s finance minister Arun Jaitely announced the tariff change, which will apply to exports of iron ore grading 58% Fe and below, on April 30.
Stocks lying at ports in the western state of Goa, which hosts most of this grade, could be available for immediate export. New supplies could come online after India’s monsoon season ends in November, provided the “the price is right,” sources said.
Sridhar Swaminathan, executive director at the Goa Mineral Ore Exporters Association, said 10 million mt of iron ore was lying idle at Goan ports due to the existing high export duty.
He noted the iron ore inventories belonged to the state and would have to be sold by auction to prospective exporters.
However, exports from Goa may only get under way after November as leaseholders are in the process of obtaining statutory clearances from authorities such as the Indian Bureau of Mines and the State Pollution Control Board, Swaminathan said.
“Too little, too late,” said Harish Melwani, chief executive of local mining firm HLN Goa, referring to the Indian government decision.
“Exports are unviable when global ore prices are sliding,” he added.
Numerous taxes and duties add up to 50-60% of the sale price, making exports uneconomic at current global prices, he explained.
Goan miners have to pay 10% towards research and development, 15% for royalties, 2% for exploration tax, 15% for a district mineral fund, along with logistics costs and port handling charges.
“Goan exports are viable only if iron ore prices go back to around $78/mt,” said Goutam Chakraborty, equity analyst with Emkay Group.
“China was originally a primary importer of Goan ore but it has less requirement for low grade ore right now with the global oversupply,” he added. Further, new iron ore production in Goa has been capped at 20 million mt/year, with a limit of 40 million mt/year allowed to be exported from the state.
In January this year the Goan government removed a two-year ban on iron ore mining that had been imposed as part of India’s nationwide probe into alleged illegal mining.
Chinese industry sources said the lowering of export taxes on Indian fines exports would not necessarily see more buyers switching back to Indian steel raw materials.
A Shanghai-based trader said many Chinese steelmakers that used Indian fines previously had got used to medium grade fines such as Pilbara Blend and Newman fines in recent years.
“Since the iron ore market has been on a protracted downtrend recently, it is more economic for Chinese steelmakers to stick to the medium grade mainstream fines to meet their needs,” he said.
The Shanghai-based trader added that Indian fines had higher impurities, such as silica and alumina, meaning it would be difficult to entice buyers now under greater environmental scrutiny from the Chinese government.
Indian government officials were unavailable for comment Monday as it is a public holiday.
