India imposes iron ore export duty $6.78 per ton, possible impact on China's imports

India imposes iron ore export duty $6.78 per ton, possible impact on China's imports

The Indian government has increased the export duty on iron ore and concentrate by Rs. 300 ($6.78) per ton, a move that could hurt China's Indian iron ore imports, industry insiders said on March 1.

The new policy was announced on Feb. 28 by India's Union Finance Minister Shri P Chidambaram, and is regarded as the first move by the Indian government to conserve scarce national resources.

"It is shocking news to domestic steel mills," said trader surnamed Ding with Hong Kong Pioneer Metals Co. Ltd, one of largest iron ore traders in mainland China, "We were informed by our Indian suppliers on Feb. 28 night that the policy was to take immediate effect, Indian iron ore suddenly had no price advantage over Brazilian and Australian ores."

According to Ding, Pioneer Metals has been forced to temporarily halt all iron ore sales, domestic steel mills being unwilling to accept such a sudden price hike.

The company has even halted iron ore imports from Australia and Brazil, due to a dramatic surge in orders from domestic steel mills for Australian and Brazilian iron ore. He is also concerned that the new export duty will cause a price hike in iron ore spot prices from the two countries.

China's Indian iron ore imports surged 9 percent to 74.75 million tons in 2006, an increase of $4.83 billion, according to statistics released by the General Administration of Customs.

Zhang Dongliang, analyst with steel consultancy Shanghai Mysteel, predicts that Indian iron ore imports will decrease significantly and there will be a hike in domestic iron ore prices. However, there has been no domestic market reaction to the policy so far .

An analyst with Shanghai Haitong Securities named Gu Yaoqing said India's move is designed to favor domestic steel mills, and to shrink India's share in the global iron ore market, especially in China.

India was the third largest exporter of iron ore and concentrate to China last year, accounting for 23 percent of total imports, behind Australia and Brazil.

"Australia and Brazil are apparently expanding production and competing to gain a greater share in the Chinese market," he said.

Gu stated that pig iron production costs would increase by at least RMB 80 ($10.34) per ton if steel mills use Indian iron ore, but such a cost increase would have little impact on steel product prices.

"In any case, large-scale steel mills will be little affected by the policy, their supplies are already fixed long term with Australian and Brazilian mines. However, small-scale steelmakers have to rely on Indian iron ore, since they have not secured long term contracts from Australian or Brazilian suppliers," he said.

Pioneer Metals' Ding also believes that Indian business trade will resume shortly, as Indian iron ore imports are both less time consuming and lower in freight charges.

"We will negotiate with Indian suppliers to lower the FOB price so as to offset the recent price increase," he added.

Currently, the CIF price of 63.5 percent Indian iron ore concentrate, the most prevailing type in Chinese market, is $84-85 per ton.

[Source: Interfax China Metals, 2 March 2007]