To keep raw materials to supply India’s building boom within borders, the steel ministry has proposed a stiffer levy on iron ore exports in the next budget.

The proposed duty to curb exports would be based on current freight on board prices, replacing a system of fixing specific rates on every tonne shipped out of the country.

The new pre-budget recommendations sent to the finance ministry last week propose a 10-15% ad valorem (or by value) duty on export prices of the commodity key to steel making. The finance minister is expected to deliver the budget on 29 February.

“The current duties have had no impact as iron ore exports continue to grow with rising prices,” said a steel ministry official who did not want to be identified. “The tax payable under the new duty structure will change with fluctuating prices.”

Last year, the government introduced ore-grade specific duties of Rs50 to Rs300 a tonne to prevent exports, but iron ore prices have shot up nearly 53% in the past 12 months. Chinese freight on board prices have risen from $60 (Rs2,364) a tonne last January to $130-135 a tonne in December.

India meets 14% of the world supply of iron ore after Brazil and Australia, which hold a 36% share each. More than 80% of India’s iron production is exported to China, the world’s biggest steel producer.

On 1 January, China introduced a new export duty to deter overseas sales of coke (or metallurgical coal), another key raw material used in making the alloy. The world’s biggest coke supplier introduced a duty of 25% on the commodity, up 10% from June 2007. It has also increased the levy on pig iron, an intermediary raw material and ferro alloys by 25% and 20%, respectively.

Observers say China’s recent duties put more pressure on India to provide natural resources, especially to fellow developing economies. With growing demand for steel worldwide, raw materials such as iron ore have seen steady price increases.

Mr. Divya Aggarwal

Money Management Consultants Ltd

Senior Copy Editor, Money Management Consultants Ltd
New Delhi, India

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