1. How low-grade iron-ore can get high returns

How low-grade iron-ore can get high returns

Withdrawal of export duty on Goan ore will help the country earn foreign exchange of about $4 billion

By: | Published: November 11, 2015 12:13 AM

There is a meltdown in commodity prices, primarily due to falling demand from China, and most minerals are being traded at 5- to 15-year low prices. Iron-ore is the worst-hit mineral among them. While the best grades of ore are being traded in the range of $50-55 per tonne FOB, lower grades of iron-ore (as are being produced in Goa) are being sold at much lower prices of $25-30 per tonne FOB.

The demand in the global iron-ore market has stagnated due to excess supplies. In spite of that, market leaders (primarily from Australia and Brazil) are adding large incremental volumes annually by expansion of projects or new ones, so as to keep smaller players out and keep the market depressed over the next few years.

Putting this into the context of Goan miners, it can be said that the industry in this tiny state is fighting the battle for survival and requires immediate support from the government to survive. The mining industry in Goa has just resumed operations after a closure of three years, during which the dynamics of the market became diametrically opposite, where prices crashed globally and governments at the state and the Centre continue to burden the industry with taxes and levies.

There is no market of Goan ore within India due to its low ferrous content (fines having iron content of 58% or below, on average). This type of ore is not bought by domestic steel mills, which get better grades of ore from states like Karnataka, Odisha, Jharkhand and Chhattisgarh. Hence, there is no other option but to export.

But in today’s scenario, it is not economically viable for Goa’s miners to export unless government withdraws duty on iron-ore exports and provides clarity on certain other issues. A point to note is that when export duty was imposed and raised subsequently, prices were at its peak. Today, prices are at 15-year lows and survival can be guaranteed only with low cost.

In June, the Union government made a partial reduction in export duty for iron-ores of below 58% ferrous grade but the change was restricted only to fines. The export duty at the rate of 30% on lumps and fines at/above 58% ferrous are still continuing in spite of the fact that the duty on high-grade ores exported by NMDC has been brought down from earlier 30% to 10% recently. One does not know the reason for such a discrimination between a government company and private leaseholders.

Besides, rates of royalty were increased in August-September last year by 50%, while provisions like miner contributions to District Mineral Funds at equivalent levels of royalty were imposed through the Mines and Minerals (Development and Regulation) Amendment Act, 2015. A similar tax provision, in the name of Goa Permanent Ore Fund, is already there for Goa miners as per the Supreme Court judgment (on Goa mining ban).

Combine all these and you find that 40% of your sales price goes into paying taxes, making the iron-ore industry in Goa uncompetitive. In comparison, competitors from Brazil, Australia and other countries pay taxes in the range of 2% to 7.5% of their sales price.

Withdrawal of export duty on low-grade ore will help the industry earn valuable foreign exchange for the country, whilst providing a boost to local economies and employment. Incidentally, iron-ore mining is one of the major backbones of the Goan economy, apart from tourism.

At a time when high-grade ores of NMDC under long-term contract have seen a drop of export duty from 30% to 10%, it is but expected that for low-grade iron ores (fines and lumps) from Goa—having no alternatives within the domestic sector—export duty should be exempt totally.

Such interventions and support by the central government will help compete with our global rivals as well as earn valuable foreign exchange for the country. Even in the current depressed market, the Goan mining industry has the potential to earn about $4 billion foreign exchange, contributing to national economy and GDP growth.

The author is secretary, Goa Mineral Ore Exporters Association.

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