Indian steel producers have said that the 15% export duty on iron ore would not bring down metal prices in the short term as they had already reduced prices of steel by Rs 4,000 a tonne last month.
The Indian government is in the process of levying the duty on iron ore with the objective of raising the supply of ore in the domestic market and thereby checking pressure on its prices.
Top steel makers say that since other inputs costs such as coking coal and met coke have also added to production cost of steel, a price cut following levy of export duty is not feasible. Last week, the Committee of Secretaries (CoS) approved imposition of export duty on iron ore to check inflation. The decision would now be considered by the Cabinet before the changes are notified by the finance ministry. Though the fiscal measure is aimed at increasing domestic availability, some experts say the move may actually decrease domestic production of iron ore.
As of now, 85% of iron ore exports constitute fines, which are of low grade and are not consumed by domestic steel producers. The balance is in the form of lumps, which is exported under long-term contracts. “If exports of fines are curbed then fines would accumulate in the mines thereby occupying the space. This would in turn reduce the production of lumps, which is primarily used by secondary steel makers in India,” says the Federation of Indian Mineral Industries secretary general RK Sharma.
Last month, the government imposed a 15% export duty on steel which was followed by a price cut on steel by steelmakers. Steel firms are now demanding an action on the inputs’ front. “Prices of iron ore and coking coal have gone up by almost 100% and 200%, respectively in the last one year. It needs to be controlled. As far as export duty on iron ore is concerned , it will not have an impact on prices as companies buy iron ore on long-term basis under which prices are fixed for a year,” said a steel firm official.
Currently, the spot price of iron ore fluctuates between Rs 5,800-6 ,000 a tonne. If an iron seller absorbs the 15% export duty, his realisation would come down by almost Rs 900 per tonne of iron ore. As a result, even domestic steel manufacturers would demand lower prices. Overall, the measure would bring down iron ore prices marginally but not large enough to impact steel prices, say experts.
Source: India Times
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