Iron Ore Exports Seen Plunging After Tax Rise

8/3/2019 Iron Ore Exports Seen Plunging After Tax Rise

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Iron ore exports seen plunging after tax

rise

Reuters Jan 3, 2012, 07.34PM ISTTags:

tax rise| steel industry| mining| Metals

NEW DELHI: India's iron ore exportsare likely to be 75 per cent lower than previouslyexpected in the quarter ending in March as a rise in export duties kicks in as part of thegovernment's push to conserve supplies for domestic steelmakers.

Asia's third-largest economy announced a 50 per cent jump in export duties on Mondayto 30 per cent, prompting traders to slash their forecasts for exports for the year to March2012 to around 50 million tonnes from 65 million. That was already down from 97million tonnes last year.

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Given that India had exported about 45 million tonnes in the nine months to December, itis likely to ship only another 5 million tonnes in the three months to March 31, topindustry body, Federation of Indian Mineral Industries, said on Tuesday.

India is one of the world's biggest exporters of iron ore, with much of it bought by China,which has the world's largest steel industry. The shortage is expected to push up globalprices by 7 to 10 per cent over the current $140 a tonne, traders said.

"We are shocked at the decision to hike export tax on iron ore as such volatility in policydoes not promote India's image as a reliable supplier," said Glen Kalavampara, secretary

of the Goa Mineral Ore Exporters' Association. Goa is India's biggest exporter of ironore.

"Absence of supplies from India will help Australian and Brazilian suppliers toconsolidate their domination of the global market."
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Indian exports were already down around a third from last year primarily due to legalwrangling over stalled shipments from a key producing state and efforts to conservesupplies.

Shares in Indian exporters Sesa Goa andNMDC slid on Monday after the announcement

of the tax hike but closed up on Tuesday on fund buying at lower levels.

Deutsche Bank sharply reduced its earnings estimates for Sesa Goa -- by 29 per cent thisfiscal year and by 24 per cent for 2012/13 -- on Tuesday, factoring in the increase in ironore export tax among other reasons.

Steel companies continued Monday's gains. Tata Steel Ltd rose 6.1 per cent to 361.85rupees. Credit Suisse upgraded the world's No. 7 steelmaker to 'neutral' from'underperform', citing valuation comfort at current levels.

The government has shown an inclination to conserve resources, though it does not

support a blanket ban on exports, largely because the domesticsteel industry does nothave the technology to use ore fines. India mostly ships fines to China.

New Delhi also hopes that sustained Chinese demand means buyers would be willing topay a slightly higher price.

"We think global demand will be able to absorb a slight adjustment in prices on theupside, which leaves a bit of room for us to adjust duties," an Indian ministry officialsaid.

GLOBAL PRICES Chinese steel mills had been expected to replenish stockpiles before

their New Year holidays, which start on Jan. 22. Chinese markets are closed on Jan. 2.

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China's iron ore imports are expected to rise 6 per cent to a record 720 million tonnes in2012, according to a Reuters poll conducted in December.

India's government is trying to cut down on illegal iron ore mining and shipments but

favours better tracking and monitoring along with higher taxes rather than blanket banson exports. It last raised the export duty in February 2011.

In April, the Supreme Court overturned an export ban imposed by Karnataka's stategovernment in July 2010, but shipments have yet to pick up because of administrativedelays.
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The court has itself banned mining in some parts of the state due to environmentalworries and allegations of illegal mining, allowing only state-run NMDC to mine in theareas.

Such regulatory uncertainty deflates industry confidence of India being a stable supplier.

Indian exports could slump below 10 million tonnes within three years as more ore isearmarked for domestic consumption, according to David Flanagan, managing director ofAustralian iron ore miner Atlas Iron.

Indian ore exporters say the government policy makes little sense as domesticsteelmakers can hardly use fines.

Moreover, India's steel demand is likely to grow by only 6 per cent in the current fiscalyear, nearly half the earlier forecast, as higher interest rates squeeze demand from theautomobile and construction sectors.

"Low-grade iron ore should have been free for exports," Kalavampara said.

Exports from India

The iron and steel sector in India was set up to meet her domestic needs and support infrastructuredevelopment of the nation. Iron and steel exports from India started after 1964, the first time India's supplydominated her domestic needs. Though the Indian exports are quite vulnerable to domestic demandconditions, the export market has been doing reasonably well in the past few years, with FY03 seeing anincrease of more than 100% over the previous year. The increase in exports to Asia (approx. 227%) andAmerica (105%) has contributed to this massive growth. In spite of the fact that India has done well, it stillfaces stiff competition, holding the twenty-fifth rank in the global export markets for iron and steel and thetwentieth position for iron and steel articles in FY03. Also, the share of India is very low in most of its majormarkets (around 3%).

The largest importer of iron and steel from India is China and that for iron and steel articles is USA. It isinteresting to note that whereas China holds the top position in the Indian iron and steel export markets, itdoesn't even figure in the top fifteen destinations for iron and steel articles exports from India.

Observers

In India, apparent steel consumption increased by 6.5% in 1999 and a further increase of 7% is expected in2000. Activity in steel consuming sectors like consumer durable goods, automobile and industrial machineryare growing a rates between 11.5 and 13.6% this year, while activity in the construction sector, which is thesingle largest consumer of all steel products, is expected to grow by 7%. Crude steel production thatincreased by 10.8% in 1999 should continue to grow another 10% in 2000. Steel exports should increase by

15%, and. total steel imports are expected to increase by 10%.

Global Market

The iron and steel sector is highly diversified, with products ranging from basic raw materials to semi-finished and finished products. The present study integrates on two broad categories- iron and steel and ironand steel articles. Iron and steel includes a wide category of products such as alloys, bars and rods, flat-rolled products whereas iron and steel articles mostly comprises of consumer goods like tables, tubes,pipes, track etc. Germany holds the top position for the aggregated iron and steel products (iron and steeland iron and steel articles) worldwide as a supplier. The total size of the world market for iron and steelstood at US$ 117.5 bn for FY03. The market is relatively concentrated with the top ten exporters contributing


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for more than half (57%) of the entire exports. The major exporters have been Germany, Japan and Francewith a share of 10.1%, 9.4% and 7% respectively.

The total size of the world market for iron and steel articles for FY03 was valued at US$ 88.6 bn. Germanyhas been the leading exporter (13.1%) followed by USA (11.6%) and China (9.2%). The market for iron andsteel articles is more concentrated with the top exporters contributing around 66.6% of the total exports. Themajor developed countries have been dominating the world market for both the categories, indicating that

higher capital availability is crucial for this sector's development.

Future Prospects

The sector has been facing tariff and non-tariff barriers (in the form of anti-dumping investigations, safeguardmeasures etc.) from various countries. USA and EU are the two regions where the iron and steel trade hasseen the most persistent non-tariff barriers. Mexico and Venezuela have raised tariffs as high as 25% and35% respectively. In such times when the exports are being hit, the cheap imports of seconds anddefectives have adversely affected our domestic sector.

However, the medium to long term prospects for the Indian iron and steel export sector look promising. USArepealed the safeguard measures on steel imports as per a WTO ruling. Further, China has emerged as themost vibrant economy for both domestic production as well as consumption. With a high growth rate, Chinais expected to contribute around 58% in the anticipated global consumption in the year 2004. The increasein consumption in China can be attributed to the infrastructure developments, the spurt coming in part from

the next Olympic games, to be held at Beijing. These are opportunities that India should look to capitaliseon. India should also capitalise on its advantage as a supplier of galvanised products. The galvanisedproducts are value added products that are mainly used for roofing, grain storage purposes and technicalgoods like AC, automobiles etc, and India has a dominant position in the world market for this product.

With the prices firming up and the global economy on a gradual recovery, the Indian export market isexpected to expand soon. Given the cheap availability of inputs (raw materials, manpower) and the variousincentive schemes, the Indian exporters have immense opportunities not only to increase their share in theexisting markets but also to diversify into other markets. Iran, Vietnam (for iron and steel) and Spain,Indonesia (for iron and steel articles) registered high growth rates during FY98-FY03, exceeding 80% and40% respectively, indicating other possible potential market destinations that await India's exploration.


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The Iron and Steel Industry in IndiaBy: EconomyWatch Date: 30 June 2010

About The Author

The core Content Team our economy, industry, investing and personal finance reference articles.

EconomyWatch, Content Team

Steel industry reforms - particularly in 1991 and 1992 - have

led to strong and sustainable growth in Indias steel industry.

Since its independence, India has experienced steady growth in the steel industry, thanks in

part to the successive governments that have supported the industry and pushed for its robust

development.

Further illustrating this plan is the fact that a number of steel plants were established in

India, with technological assistance and investments by foreign countries.

In 1991, a substantial number of economic reforms were introduced by the Indian

government. These reforms boosted the development process of a number of industries - the

steel industry in India in particular - which has subsequently developed quite rapidly.

The 1991 reforms allowed for no licenses to be required for capacity creation, except for some

locations. Also, once Indias steel industry was moved from the listing of the industries that

were reserved exclusively for the public sector, huge foreign investments were made in this

industry.

Yet another reform for Indias steel industry came in 1992, when every type of control over

the pricing and distribution system was removed, making the modern Indian Steel Industry

extremely efficient, as well as competitive.
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Additionally, a number of other government measures have stimulated the growth of

the steel industry, coming in the form of an unrestricted external trade, low import duties, and

an easy tax structure.

India continually posts phenomenal growth records in steel production. In 1992, Indiaproduced 14.33 million tones of finished carbon steels and 1.59 million tones of pig iron.

Furthermore, the steel production capacity of the country has increased rapidly since 1991 - in

2008, India produced nearly 46.575 million tones of finished steels and 4.393 million tones of

pig iron.

Both primary and secondary producers contributed their share to this phenomenal

development, while these increases have pushed up the demand for finished steel at a very

stable rate.

In 1992, the total consumption of finished steel was 14.84 million tones. In 2008, the total

amount of domestic steel consumption was 43.925 million tones. With the increased demand

in the national market, a huge part of the international market is also served by this industry.

Today, India is in seventh position among all the crude steel producing countries.

The following are the premier steel plants operating in India:

Salem Steel Plant at Tamil Nadu

Bhilai Steel Plant at Chattisgarh

Durgapur Steel Plant at West BengalAlloy Steel Plants at West Bengal

Visvesvaraya Iron and Steel Plant in Karnataka

Rourkela Steel Plant at Orissa

Bokaro Steel Plant at Jharkhand

Iron Ore Exports Seen Plunging After Tax Rise

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