High price of iron ore may absorb impact of export duty hike

The recent spurt in prices of iron ore in the international market is likely to offset the Union finance minister Pranab Mukherjee’s plan to put brakes on iron ore exports through hike in export duty rate.

The Union budget for 2011-12 proposed to enhance the export duty rate for all types of iron ore- 15 per cent for lumps and 5 per cent for fines and unify it at 20 per cent ad valorem. While doing so, the budget has exempted iron ore pellets from export duty to encourage the value addition process for fines.

The finance minister’s argument was that iron ore is a natural resource which needs to be conserved. This is in tune with the policies adopted by iron ore rich states like Orissa and Karnataka. While Karnataka has banned iron ore exports, Orissa is mulling to formulate a policy that will enforce curbs on iron ore and chrome ore exports, including a blanket ban on overseas exports.

Industry sources, however, feel that the hike in export duty is not going to impact the iron ore exporters as the price of the commodity is ruling high in the international market. The iron ore price has jumped by 30-35 per cent recently, they pointed out.

“The prevailing price of iron ore in the international market is high and this can absorb the export duty hike. I feel the budget proposal is not going to affect the Indian exporters though the government may earn more as the higher duty will collected on higher ore prices”, said P L Kandoi, president, Kalinga Nagar Industries Association.

The export price of iron ore fines from Paradeep to China has recently gone up from Rs 2650 per tonne to Rs 3515 per tonne, he said.

The state-owned Orissa Mining Corporation (OMC), however, welcomed the move saying the duty hike has reflected the government intent to discourage iron ore exports.

"The hike in export duty of iron ore is going to hit the exporters hard unless the exporters get a higher price for the iron ore to offset the rise in the rate of duty”, said Saswat Mishra, managing director of OMC.  

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