The 5% export duty on iron ore pellets might go. The mines ministry, after consulting the steel ministry, has recommended to the finance ministry to abolish the duty in view of the crisis in the domestic pellet industry, bogged down by lower capacity utilisation as well as falling exports and price of the steel-making raw material.
The country’s pelletisation capacity saw a rapid growth to currently stand around 80 MT from 18 MT in 2011-12 after the government announced fiscal impetus by reducing import duty on capital goods required for setting up of beneficiation and pelletisation plants in the budget for 2012-13.
However, with the imposition of 5% export duty in January 2014 and subsequent fall in international prices, cost competitiveness of the industry went for a toss and now, it is in a deep financial crisis. For want of domestic demand, export was mandatory though.
Sources in the mines ministry said from a level of $220 per tonne in January 2011, the international price of pellets came down to $175 a tonne in January 2014, when the duty was imposed, to currently stand at $69 per tonne. This works out to FOB realization of around $75 per tonne.
“Given the change in international market scenario, there seems to be no justification for continuing with the export duty. This is why, in agreement with the inter-ministerial committee recommendation and in consultation with the steel ministry, we have urged the revenue department to abolish export duty on iron ore pellets,” said a senior mines ministry official.
Commerce ministry had also strongly objected to the levy of export duty.
The pellet industry has been utilizing less than 40% of their capacity due to no off-take from the domestic steel industry. From a much higher level, exports of pellets have come down to stand at 4.57 lakh tonne in one full year starting from January 2014. The mines ministry believes that if the current trend persists for some more time, the industry would not be able to service its debts and the assets will shortly be categorized as NPAs.
In a presentation to the mines ministry, pellet makers had recently argued that with the drop in exports and domestic demand, the government is actually incurring a R840 per tonne loss of excise duty, Railways is also incurring R1,000 per tonne freight revenue, ports R300 per tonne, R600 a tonne sea freight loss. Road transport sector’s revenue also took a beating.
The Parliamentary Standing Committee on Coal and Steel had in February 2014 said, “The government should continue with the earlier policy of zero export duty on pellets so that the huge investment made in the pellet industry do not become non-productive assets and thousands of people do not lose their livelihood due to a gradual close down of the pellet industry with additional financial burden of increased export duty.”