Total Export Ban Can Create Storage Issues, Cause Revenue Loss.

India is the world’s third largest iron ore producer and fourth largest exporter. Its exports are likely to increase after a ban was lifted by the supreme court. The supreme court lifted a ban on iron ore shipments from the state of Karnataka, freeing about a quarter of supplies from the world’s third largest exporter as strong demand from China keeps prices firm.

The south Indian states had banned shipments of iron ore from 10 ports and stopped its transport to other ports for exports in July last year, citing a drive against illegal mining and the need to preserve the raw material for local steelmakers. India exports over 90% of iron ore to China and sends about 5% to Japan.

Earlier in Union Budget, India hiked export duty on iron ore to 20% from 5% for fines and from 15% for lumps to boost the domestic steel industry and create jobs. But this is not enough as India doesn’t have the technology to absorb all of its low-grade fines locally and a total export ban could create problems of storage besides losing billions of dollars in export revenues.

Close to 40% of India’s exports are from the west coast state of Goa. China is India’s biggest buyer, with its proximity helping it secure ores with low freight costs. India’s largest exporter is Sesa Goa followed by Essel Mining, Rungta Mines, VM Salgaoncar, MSPL and Chowgule.

India’s iron ore exports fell for the eight straight month in February because of a continuing ban on shipments by its key state, Karnataka. Exports are likely to face further pressure as the country hikes freight rates again. According to Federation of Indian Mineral Industries (FIMI)’s latest data, India’s exports of iron ore dropped 18.6% from a year ago to 10.137 million tones in February.

That brought exports in April-February to 85.43 million tones, down 18% from a year earlier. Iron ore exports from India are expected to fall to 90 million tone in the current financial year ending March 31 from 91.7 million tone a year ago, and should drop another 35% in the next financial year because of the higher taxes, rail freight and other curbs, FIMI said earlier this month.

Most iron ore indexes, based on spot transactions in China and used by global miners in setting quarterly contracts, rose to near one-month high last week as Chinese steel mills, the biggest buyers of iron ore, returned to the market to boost run-down inventories.

The Steel Index’s 62% iron ore benchmark traded around $180.8 per tones including freight, has risen almost 10% in last 20 days thanks to buyers in China returning to the market on expectations that steel demand would improve as the construction season kicks off. Tight supply out of India also supports prices in global market.

The prices are likely to remain on the higher side as Indian Railways said it will impose a “busy season” charge of 7% on iron ore freight rates from April 1 to June 30 and from October 1 to March 31 which is roughly R150-200 per tonne higher than normal. India had already hiked railway freight rates by R100 to R1,600 per tonne from March 3.

India’s iron ore industry has many challenges to face which needs to be eliminated in order to top the global iron ore trades. The country’s port infrastructure is very poor and vessels wait up to seven days to load cargos. Also Indian prices generally follow the global market, dominated by Australian and Brazilian miners, with China buying on a spot basis for its low-grade ore needs.

Source : financialexpress.com