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India curbs iron ore export.

Issued at 2011-04-05



THOUGH India is the world’s third-largest exporter of iron ore, the business is facing a host of problems that threaten to derail future growth. The past few months have seen the industry facing a major crisis and its impact on exports has been disastrous.

Last week, the Federation of Indian Mineral Industries (FIMI) warned that India’s overseas iron ore shipments are likely to decline by 25 per cent in the fiscal ending March 31. “The industry is facing multiple jolts,” remarks R.K. Sharma, secretary-general, FIMI. “Under the circumstances, total annual exports would not exceed 90 million tonnes.”

Last year, India exported 117 million tonnes of iron ore, making it the third-largest exporter – after Australia and Brazil – of this key raw material for steel production. Ninety per cent of India’s iron ore exports are to China and about five per cent to Japan. Iron ore prices topped a record $200 a tonne in February, following floods in Australia and Brazil, which affected global supplies.

But resistance from buyers in China have saw global prices cool down to below $170 a tonne now. However, Indian exporters have been crying foul as they have not been able to take advantage of the peak prices.

There are several factors that have slowed down the growth of exports of iron ore from India. One of the most significant has been the politics around iron ore mining, especially in the southern states of Karnataka and Andhra Pradesh.

A clique of powerful mining barons – led by the Reddy brothers in Karnataka – have in recent years acquired significant political clout. The billionaire Reddy brothers (who include the state’s tourism minister Janardhan Reddy – enabled the Bharatiya Janata Party (BJP) to come to power for the first time in a south Indian state, helping B.S. Yeddyurappa to become the chief minister of Karnataka.

However, the Reddys also have close links to politicians from other parties including the Congress, and from time to time, they threaten to pull down the BJP government. Last year, the Karnataka government was forced to act, after allegations of illegal mining in the iron ore-rich Bellary district – bordering Andhra Pradesh – surfaced.

A central empowered committee, appointed by the Supreme Court, is examining the charges of corruption and also trying to establish the links of many top Karnataka politicians with the mining mafia. Worried over the impact of the probe, the state government imposed a ban on exports of iron ore from the state.

Adding to the woes of the industry, the Indian government quadrupled the export duty on iron ore fines from five per cent to 20 per cent and on lumps from 15 to 20 per cent. Demand for Indian iron ore fell sharply after the hike in duties.

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AMONG the worst hit by the hike in excise duty are exporters from the tiny state of Goa, which is the largest producer and exporter of iron ore. S. Sridhar, executive director, Goa Mineral Ore Exporters’ Association (GMOEA), points out that there is no demand for the state’s low-grade ore in India.

But the quadrupling of export duty has crippled the industry in the state, he says. The industry pays the state government a royalty of Rs250 a tonne on exported iron ore; the government is expected to earn about Rs9 billion this year by way of royalty alone. During the first 11 months of fiscal 2011, the state exported 46 million tonnes of ore.

Ore exports account for 99 per cent of exports from Goa, whose only other major source of income is tourism.

According to FIMI, iron ore exports from India fell for eight months in a row last fiscal, with February exports plunging by more than 18 per cent compared to year-ago figures. India exported 85.43 million tonnes of iron ore between April 2010 and February 2011, a sharp 18 per cent decline. FIMI chief Sharma expects March figures to be even worse – down to seven million tonnes from 13 million tonnes in March 2010.

States such as Orissa and Chhattisgarh are also demanding a ban on export of iron ore to feed their local steel industry.

One reason that the governments are discouraging exports of iron is the huge domestic demand for the raw material. Most of the top domestic and international steel producers have launched ambitious brownfield and greenfield expansion plans, and are demanding guaranteed and uninterrupted supplies of iron ore.

India is the world’s fifth-largest crude steel producer; the government plans to expand steel production to 120 million tonnes by the end of the current fiscal, up from 70 million in fiscal 2010.

The country produced 226 million tonnes of iron ore in 2009-10, of which more than 117 million tonnes were exported. Only about half of the 500 mines in India are operational, but the mining sector is dominated by unorganised players.

High-grade ores – with almost 65 per cent of iron content – are produced in the east and are bought mostly by the domestic steel industry. Low-grade ore (with 50 to 60 per cent iron) is produced in states like Goa and are exported to China and Japan.

The Indian Railways, which earns about Rs85 billion a year – its second-largest source of income – from transporting iron ore, frequently hikes freight rates. For instance, in 2011 it raised rates for ore meant for exports by Rs500 a tonne in January and again by Rs100 a tonne in March. The railways have also imposed a ‘busy season’ charge of seven per cent on iron ore freight rates for the peak travel season between April and June and October and March. Currently, it costs Rs1,600 a tonne to ferry ore for exports.

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BESIDES railways, large quantities of iron ore are also transported in trucks, especially in states like Karnataka. But in many instances, the trucks are over-loaded, resulting in accidents and damage to the arteries.

The central government has decided to crack the whip on the culprits. C.P. Joshi, the minister for road transport and highways, has asked transport secretaries and commissioners to crack down on operators of overloaded vehicles carrying iron ore. The central government will direct state governments to impose a ban on the movement of overloaded trucks. According to a government report, trucks accounted for more than a fifth of accidents on Indian roads in 2008.

The crisis in the domestic iron ore business and the huge hunger for the raw material from the local steel industry has resulted in Indian companies seeking mines abroad. Top Indian steelmakers including state-owned Sail, private sector major Tata Steel and Indian-origin entrepreneur Lakshmi Mittal’s ArcelorMittal are currently eyeing deposits in Afghanistan’s Hajigak iron ore reserves.

Nearly two dozen international majors, including from China, are already in the race to operate the reserves, estimated at two billion tonnes and worth $350 billion.

Tata Steel, which a few years ago acquired European steel major Corus, is also keen on developing iron ore reserves in Labrador and Quebec in Canada in a joint venture with New Millennium Capital Corp, a Canadian mining firm.

Tata Steel will spend nearly $52 million along with Millennium in doing a feasibility study of the reserves in eastern Canada. The two deposits hold over nine billion reserves of iron ore. The Tatas are expected to control an 80 per cent stake in the new joint venture, once it begins operations.

 


Source: Down



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