State trading companies exporting iron ore are now finding it increasingly difficult to continue with their operations as procurement of ore has become a problem.
Additional constraints like exorbitant rail freight in moving ore from mines to ports and high export duty of 20 per cent are making exports unviable.
Industry sources told Business Line here that given the resistance that has been building up in the wake of ban on export of iron ore in Karnataka, the major iron ore mining State, from the latter half of last fiscal and the subsequent lifting of the ban in April , has made things difficult for State trading export houses.
Also Karnataka not putting in place the machinery required to regulate export of iron ore to preclude illegal mining has added to the woes of the State trading companies.
In States like Orissa, the number of permits needed for production by mine owners, for export and for transport of the cargo and high royalty rates with the railways charging three times the normal rate for similar cargo, the procurement of iron ore for trading purposes has become an intractable challenge, sources said.
They said that domestic steel lobby invariably raises the chorus of raw material shortage for value-addition when enough ores exist, making the trading of this raw material extremely expensive.
The apprehensions over illegal mining of iron ore in Karnataka have also put paid to genuine traders in the export business, although there is no mismatch among domestic production, consumption and exports, the sources said.
In 2009-10, for which full figures are available, the country produced 217 million tonnes of iron ore of which 115-117 million tonnes were exported and another 93 million tonnes met the domestic demand, leaving a surplus of 7-8 million tonnes within the country, they added.
The sources noted that no one could wish away iron ore exports because the ratio between fines, mostly exported, and lumps is 35:65, which means that to produce 35,000 tonnes of lumps, one needs to produce 65,000 tonnes of fines.
These fines being tiny particles would during the rainy season get washed away and cause water and air pollution.
Besides, there is limited capacity to utilise fines domestically, the sources said adding that China has huge capacity to utilise these fines. China also has the capability to import equally huge quantities from neighbouring countries like India which boasts of a variety of grades including low grades of fines.
Hence, the source said, “iron ore exports have to continue because as things stand today, fines are in surplus within the country. China imports mostly fines and this is an opportunity for India to cash in.
“Otherwise, ultimately what will happen is that we will have mounds of fines on the one hand which will create environmental problems and on the other we will lose out on the opportunity of earning good foreign exchange”.
Senior executives of MMTC said that the Union Cabinet recently approved extension of the company's five-year long-term Agreements (LTAs) with Japanese, South Korean and Chinese mills, which expired in February this year, for another three years to March 31, 2014.
But the Cabinet excluded the three Chinese steel mills to which the company was supplying the ore on grounds that there was huge demand for the ore from the indigenous steel mills.
The world's other leading ore producers such as Australia and Brazil, which export ores in massive quantities against hardly less than three million tonnes by the Indian company, were now fixing the price on quarterly basis against the earlier annual basis.
India had to follow this pattern too with the index-based quarterly contracts on the basis of average spot market prices.
The Indian delegation to Japan, comprising senior officials of the Ministry of Commerce and Steel and from MMTC, is planning to go to Tokyo soon to get the best price possible before August, the sources said.
The uncertainty of mines supply, particularly from Karnataka where only six out of 19 mines were only allowed to ship ores to western markets, and the cessation of supply to Chinese mills with the possibility of MMTC exporting its ores beginning only from September to Japan, the state trading company fears that there would be a shortfall of one million tonnes in its export, which was 2.8 million tonnes in 2009-10.