India on path to exit seaborne iron ore market

Exports of iron ore from India are expected to fall to zero after the government imposed a 50pc export tax on all grades of the steelmaking raw material, effective from 22 May.

Effective yesterday, the government has imposed a duty of 50pc on iron ore and concentrates, non-agglomerated and agglomerated, implying that all grades will now be at a 50pc export duty. Iron ore with an Fe content over 58pc previously had an export duty of 30pc that made them undesirable for exports.

A duty of 45pc has been levied on exports of iron ore pellets. Previously, pellet exports were not taxed. The new duties will apply to cargoes loading from 22 May onwards, two pellet makers said. But the new taxes will not apply to cargoes on the water, said another pellet maker. "A cargo with a letter of export order will be exempt," said an analyst working at a steelmaker.

The new taxes will "kill the pellet industry as domestic demand will not be able to support pellet production amid high logistics costs," said an Indian pellet maker. Another pellet producer called the move irrational and said domestic iron ore prices will fall, pellet plants will need to cut production or shut down, and low-grade stocks will build up in India.

India accounted for 3pc of China's iron ore imports last year and is an important supplier of low-grade fines. Indian iron ore pellet exports stood at 10.78mn t last year, and China accounted for 69pc of the exports. The lack of Indian iron ore exports from the seaborne spot market will result in a serious liquidity problem for the cfr China pellet index.

The changes in the iron ore export duty follow a judgement on 20 May by the country's top court, that had paved the way for exports of low-grade iron ore from the Indian state of Karnataka after a decade. The court decision would have allowed for "around 6-10mn t of low-grade iron ore exports from Karnataka, mainly to China," a source said, adding that the taxes will now make that unfeasible.

Chinese mills often use Indian low-grade fines to manage their steelmaking costs when prices of other grades and mainstream Australian low-grade fines are uneconomical based on their steelmaking margins. India's exports to China had dropped sharply in the second half of 2021 on Chinese steelmaking cuts.

Coking coal import duties removed

The government has removed import duties on metallurgical coal, coke, anthracite and pulverized coal injection cargoes. Coking coal previously had an import duty of 2.5pc, while coke imports were taxed at 5pc.

The export duty for flat-rolled products of iron ore or non-alloy steel with a width of 600mm or more, clad, plated or coated has been increased to 15pc. India exported 2mn t of the product last year under code 7210, largely to European markets. Indian steel exports have gained market share over the years, largely incentivised by strong export prices and China's steelmaking cuts.

The decision to hike export duties was taken to tackle the rising cost of commodities, according to the government. Domestic India hot-rolled prices stood higher by 8pc year-on-year on 20 May, when the cfr India premium hard coking coal low-vol index stood at three times the price a year ago. The high coking coal prices has pushed merchant coke makers in India to cut their production, as the price spread between fob China metallurgical coke and cfr India coking coal has practically disappeared, squeezing margins for coke makers.

By Deepali Sharma