India's Possible Iron Ore Export Tax Could Negatively Impact Chinese Steel Mills
By Ginger Ding
03 Jan 2008 at 09:21 AM GMT-05:00
resourceinvestor.com
SHANGHAI (Interfax-China) -- The Indian Ministry of Steel's proposed 10% to 15% tax on iron ore exports to reserve mineral resources for the development of India's steel industry reported by Indian media yesterday has prompted Chinese analysts to voice concerns over the impact such taxes would have on domestic steel mills.
The Ministry of Steel submitted pre-budget recommendations to the Finance Ministry last week. The proposed duty would be based on current FOB prices, replacing a system of fixing specific rates on every tonne shipped out of the country. The budget is expected to be completed on 29 February, according to a report released yesterday by the Mint, a national business newspaper in India.
The ministry was unavailable for comment when reached by Interfax today.
"The Indian steel industry has been discussing the new iron ore export tax policy, which is intended to curb the excessive export of iron ore resources. The proposal, which is definitely bad news for Chinese steel mills, is yet to be settled, though it will inevitably happen sooner or later," Gao Bo, an analyst with Shanghai Mysteel, told Interfax.
"The proposal is a move to support India's target to triple its steel capacity to 124 million tonnes by 2012. The current steel industry in India resembles that of China in 1996, and India will gradually slow its iron ore exports and transform itself into an iron ore importer in the long run to support its expanding steel industry," Gao said.
Last March, the Indian government introduced ore-grade specific export taxes of INR 50 ($1.27) to INR 300 ($7.61) per tonne, representing the first move by the Indian government to conserve national resources. However, iron ore prices surged over the year, with FOB prices of grade 63.5% Indian iron ore reaching $135 to $140 per tonne at the end of December 2007, up 146% from the per-tonne-price of $57 at the beginning of 2007.
Current export duties in India are less of a concern in light of high iron ore prices, according to analysts, which is why the steel ministry will promote a tax under the new duty scheme that will change along with fluctuating prices.
"The CIF Indian iron ore price of grade 63.5% stood at around $200 in early December 2007. The high prices already led to some steel mills losing money. If the prices are even higher, which would result from an export tariff, Chinese steel mills would have an even harder time," Gao said.
The CIF price for 63.5% Indian iron ore at the end of last December dipped by $10, to a per-tonne price of between $185 and $190, as Chinese consumers refused to pay higher prices, according to an iron ore trader based in Beijing.
India's state-run miner, the National Mineral Development Corp., announced last Monday that it would raise the prices of iron ore sold under long-term contracts to domestic clients by 47.5%, effective 1 October, 2008.
"Both the possibility of new export taxes on iron ore exports and higher iron ore prices in the domestic Indian market show India's resolution to keep more iron ore resources at home. The steel industry of the iron ore-rich country is bound to be on a fast track, though India's dependency on coke imports may set back its development," an official with a large iron ore trading house in Hebei Province, who asked to remain anonymous, told Interfax.
India is the third largest iron ore supplier in the world, after Brazil and Australia. More than 80% of India's iron ore production is exported to China.
According to the China's General Administration of Customs, China, which is the world largest steelmaker, imported 70.99 million tonnes of iron ore from India in the first 11 months of last year, up 4.65% year-on-year.
India is also concerned with China's move to implement a stiffer export policy, as many medium and small-sized steel producers in India rely on coke imports from China, the world's biggest coke producer. India's coke imports from China have grown to slightly more than 6 million tonnes, according to the Indian Metallurgical Coke Manufacturers Association.
As of 1 January, 2008, China has raised the tax on exports of coke, pig iron and steel billet to 25% from the previous 15%, as well as raised the export tax rate of rebar and rod from 10% to 15%, while taxes on steel plate exports will not change. Hot-rolled steel plate exports will continue to be taxed at the same rate of 5%, while exports of cold-rolled steel sheet will remain untaxed.
© Interfax-China 2007. For more intelligence on Chinese metals and mining, contact David Harman in Hong Kong at david.harman@interfax-news.com or (852) 2537-2262. |
