India has raised the export tax on iron ore, likely increasing local prices and also deepening a slump in shipments of the steelmaking material from the world's third-largest supplier.
The government increased the tax to 30%, effective Dec. 30, 2011, from 20% on both iron-ore fines and lumps, according to an order posted on the Central Board of Excise and Customs website Monday.
The tax rise will likely hurt India's export competitiveness. India sells iron ore mainly in the spot market to China, unlike Australia and Brazil, the top two iron-ore producers, which sell the commodity mostly through long-term contracts.
Shipments from the South Asian country decreased 28% between April and November to 40 million tons, according to the Federation of Indian Mineral Industries. Volumes have been hit by a mining ban in the southern state of Karnataka, a freeze on sale of old stocks in western Goa state and transport bottlenecks in the eastern state of Orissa.
"Indian iron ore will no longer be competitive in the world market," said R.K. Sharma, the federation's secretary general. "This [export tax rise] will push the industry to the verge of dying."
With high export tax and railway freight, India's iron-ore exports won't exceed 50 million tons this fiscal year through March, he added.
India exported 97.64 million tons iron ore last fiscal year.
The increase in export tax could lower the profit margin of Sesa Goa Ltd., India's largest iron-ore exporter by volume, Managing Director P.K. Mukherjee said.
Prior to the export tax change, industry officials had estimated exports in 2011-12 to be between 60 million and 65 million tons because of mining-related issues.
The Supreme Court earlier this year banned mining in the major iron-ore producing districts of Karnataka to prevent illegal mining and environmental damage. In Goa, moves to reduce environmental impact and illegal mining are affecting production. The two states account for around 70% of India's iron-ore exports.
The tax move follows lobbying by local steelmakers who wanted the level to be raised in order to preserve the raw material because of rapid expansion in capacity by the steel sector.
Source: Dow Jones |
