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What has roiled the industry further is that the Centre has effected the hike bowing down to the stronger lobby of the steel makers.
Driving the final nail in the coffin of the iron ore industry was also the railway budget which increased freight charges by Rs 100 a tonne, hoping to take advantage of the bullish domestic iron ore market.
While Finance Minister Pranab Mukherjee’s logic in hiking the export duty from five per cent for iron ore fines and 15 per cent for lumps to a uniform 20 per cent on both — can be seen as an effort to soften the rising steel prices in the domestic market by discouraging exports of iron ore, the ore exporters do not agree with the logic.
According to the iron ore exporters, besides badly impinging on the export of iron ore, the Centre’s move would also sound the death-knell of the sector which is already caught in the illegal iron ore mining controversy, leading to its ban in Karnataka, one of the leading iron ore mining states.
Since the mining industry is labour intensive, creating obstacles to exports may lead to huge layoffs. An official of a major iron ore mining company, MSPL, argued that instead of hiking the export duty, the Centre and the State must take steps to curb illegal mining in order to uplift the sector which is already in the doldrums due to the illegal mining controversy.
The steel sector, which has been asking for such a measure for many years, is naturally happy as more ore will be available within the country. Justifying the sector’s demand, which the Centre, in turn, acceded to, an offical from Tata Steel put it: “It is our belief that iron ore as a natural resource is important for the steel industry. It is imperative that value addition of the ore is done within the country for higher realisation.”
However, Federation of Indian Mining Industry Secretary General R K Sharma refused to buy this argument. According to Sharma, the hike, coupled with increase in railway freight will not only make Indian iron ore uncompetitive in the global market it would also affect the export of fines. Furthermore, while reasoning that fines do not enjoy strong domestic demand, he argued that export duty hike would only result in huge stock building without adeqeuate storage facilities. He also added that hike in the duty on lumps will only result in slowdown in total ore mining because fine and lumps are mined together. This in turn may lead to higher price of steel and harm domestic consumers.
Emboldened by the budget’s favourable move, the Tata offical further argued that when iron ore is exported as a finished product with greater value addition, the net realisation is higher, quipping: “Why export the raw material, when the country is capable of producing and exporting the finished product?”
Mukherjee in his budget has also lowered export duty on iron ore pellets to zero to encourage higher value addition in exports. But ore miners say that the demand for pellets from China, the main importer of Indian fine ore, is low because the country has created a huge capacity for making pellets and it imports mostly fines. India, world’s third largest iron ore producer, sells most of its annual exports of 100 million tonne to China. Iron ore exports in April 2010-January 2011 stood at 75.11 million tonne, which was down by 18 per cent from 91.71 million tonne a year ago, according to Fimi data.