India faces conflicting pressures on iron ore pellet export duty

The Indian government has been caught between the conflicting demands of iron ore miners and steel producers regarding the recently imposed five percent export duty on iron ore pellets, a government official said on Wednesday, March 5. As SteelOrbis previously reported, India's Central Board of Excise and Customs under the Ministry of Finance issued a notification dated January 27, 2014, stating that a five percent export tax has been imposed on iron ore pellets, with immediate effect.
 
India's Ministry of Commerce on Tuesday, March 4, backed by the Ministry of Mines, sought the withdrawal of the export duty on grounds that the imposition threatened to cause the closure of several iron ore pelletization plants and the $5.5 billion investment made by the industry to add value to iron ore would become unviable, the government official said.
 
The Ministry of Mines also suggested that the Ministries of Mines and Commerce were not consulted by the Ministry of Finance, the authority which imposed the export tax, before the export tax was announced in January.
 
However, taking a contrary stand and supporting the export duty, India's Steel Ministry has sought the continuation of the tax on grounds that steel producers were facing an acute shortage of raw material from domestic mines and the export tax was aimed at conservation of resources for domestic steel production, the government official added.
 
Indian steel producers, led by JSW Steel Limited, have in fact supported the export tax on pellets and have called for an increase in the export tax from five percent to 30 percent since exports of iron ore fines are subject to an export tax of 30 percent, the official said. Steel producers in a communication to the government have stated that miners prefer focusing on pelletization rather than lump and fine production since the export of the former attracts less export duty.
 
Brahmani River Pellets Limited, a subsidiary of Stemcor, has closed down its pellet plants in the eastern Indian state of Orissa. Essar Steel has also closed down operations of its 6 million mt per year pellet plant also located in Orissa, following the levy of the export tax. A total of five pellets plants have stopped production since January 2014.
 
According to the Pellet Manufacturers' Association of India (PMAI), the export tax is in conflict with the Indian government's aim to promote investments in beneficiation and pelletization, with the government having reduced the import duty on pellet-making equipment from 7.5 percent to five percent to boost value addition in iron ore mining, a PMAI official said.
 
There are 36 iron ore pelletization plants in India with an aggregate production capacity of 63 million mt per year, with capacity utilization standing at about 50 percent, according to the PMAI.