Sunday, February 24, 2008

India to slap steep duty on iron ore exports to China

The Indian steel ministry has decided to push for imposing a steep duty on iron ore exports. This view has been formed after a ministerial delegation led by steel secretary J S Sarma held wide ranging meetings with officials in the government and the steel industry in Beijing until Friday.

India imposed a small duty of Rs 300 a tonne of iron ore last year. But it was forced to partially roll back the duty after Chinese buyers raised a hue and cry over it. China buys 85 per cent of India's exports of iron ore.

The ministry's move, if successful, is bound to result in howls of protests from the Chinese steel industry. But the steel ministry is convinced it would be able to get away with the new duty because the Chinese industry needs Indian iron ore. The duty is necessary to discourage exports and preserve India's natural resources to the extent possible, it has argued.

"Most countries in the world preserve their natural resources and meet their requirement through imports. The United States is doing it in the case of oil. There is a feeling we should preserve our natural resources to the extent possible," Sarma said on Friday.

China raised the duty on metrological coke exports from 15 per cent to 25 per cent some months back. New Delhi has been trying to persuade Beijing to reduce this duty as the Indian steel industry is heavily dependent on Chinese met coke.

The steel ministry is believed to have asked for a duty of 15-20 per cent on an ad valorem basis. At present, the duty is charged on the basis of ferrous content in iron ore. There is no duty on ores low ferrous content since the finance ministry partly rolled back its decision last year.

This is what makes the steel ministry's move to charge duty on the money value of iron ore exports very significant. It implemented, it would result in a sharp increase in the prices of Indian iron ores shipped to China.

The international prices of iron ore is rising sharply almost every week. Imposition of duty by the Indian government will add to the total price of Indian iron ore but would not seem out of place in the context of the scenario of rising prices, sources said.

During the discussion, Chinese officials requested India to enter into long-term agreement on the sale of iron ore. China buys its supplies of iron ore from Australia and Brazil on the basis of long-term contracts while most of the purchases from India are done on the spot market.

"They have proposed long-term agreements. We have not yet responded to it," Sarma said.

New Delhi is reluctant to enter into long duration agreements because of the controversy surrounding sale of natural resources to foreign countries. Besides, the spot market offers higher returns on a rising price scenario.

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