by Stuart Burns
India is really paying the price for past failures to control its iron ore industry.
Those failures resulted in illegal mining, tax avoidance and accusations of corruption. The result was mining bans in provinces such as Karnataka in the south and Odisha in the east. From its position as the world's third-largest exporter just five years ago, India has progressively exported less and less, to the point where it is now a net importer and, according to Businessweek, both Tata Steel and JSW are likely to become major importers this year. JSW, the nation's third-largest producer, could be buying as much as 15 million tons from abroad, the Federation of Indian Mineral Industries is quoted as saying.
It is not an outright ban on exports that is the problem. India charges a 30% duty on iron ore for export, while railway freight on iron ore for export is 3.6 times the local levy, a Bloomberg article reports. Export shipments of iron ore may decline 38% to 9 million metric tons in the year ending March, from 14.4 million tons last year while imports ramp up. It seems from comments made last month to the WSJ that the case is most compelling for coastal-based steel plants that can import high-grade ore for the same price as they can source domestically supplied low-grade ore.
Ridiculously, the country imposes a 30% export duty but only a 2.25% import duty. For a nation with ample iron ore reserves but a balance of payments problem, that doesn't make a lot of sense. Exports are a fraction of total production, as the WSJ reported, exports are estimated to be 125 million tons this year, expected to be down by about 7% from last year. With the country restricting gold imports to salvage the balance of payments, you would think exports of iron ore would be welcomed rather than India encouraging more imports. Still, with China importing some 800 million tons, India's little addition is not going to give any support to the seaborne iron ore market. Prices are likely to stay weak for the next few years as we recently reported and Indian producers will continue to struggle to compete even for domestic clients.