Five pellet units shut as export duty takes toll

Written by Priyadarshi Siddhanta | priyadarshi siddhanta | Updated: Feb 28 2014, 06:09am hrs
Hurt by the imposition of a 5% export duty, which had made their operations unviable, five major iron ore pellet producers have shut shop in the past two weeks. Officials in the ministry of mines estimates close to 15 million tonnes of pellet production, entailing an investment of Rs 6,570 crore could be jeopardised.

Essar Steel confirmed it had closed down operations at its 6 mtpa pellet producing facility at Paradip owing to depleted demand and contracting margins. Shivramkrishnan Hariharan, chief commercial officer, said: Essars operations have been stopped since early February as the export levy coupled with inadequate domestic demand are making operations unviable.

Godavari Power and Ispat has closed down its Raipur plant in Chhattisgarh and is preparing to do the same at its Odisha unit which has a capacity of 2.4 MT capacity. Managing director BL Agrawal said: We have no option because with the demand low, the cost of operations is disproportionately higher than the returns. Agarwal added that the iron ore pellet industry could thrive on exports since local demand is low.

No firm can operate in a situation where it finds it hard even to meet the cost of production, he noted.

Arguing there was no option but to close down operation, Ravi Uppal, Group CEO, JSPL contended that the irrational and ad hoc levy of 5% export duty was putting large investments at risk. Ardent Steel has also decided to close down its Odisha operations from March 4. Director Sanjay Gupta pointed out that traditionally, pellet plants had come up in Odisha as they catered to the export markets. This duty has lowered margins by Rs 1,200-1,300 a tonne, which is substantial in view of low domestic demand, Gupta said.

The export duty was imposed by the finance ministry on January 27 at the behest of the steel ministry, which had argued that iron ore was being exported in the garb of pellets and that there was a pressing need to disincentivise this. The government in a bid to encourage utilisation of low-grade iron ore fines had encouraged pelletisation and beneficiation by reducing the import duty on plants and equipment from 7.5 % to 2.5% in the Budget 2012-13 besides reducing the export duty to zero.

The Kolkata-based Shyam Group says its board will soon take up a proposal to review the Odisha pellet operations in view of the export duty. The firm's vice chairman and MD B Bhushan Agarwal said the capacity utilisation of the company's plant there is down by 75%.

A top official of the Pellets Manufacturing Association of India (PMAI) said producers have sought UPA chairperson Sonia Gandhi's intervention on February 21 in rolling back the duty. While commerce minister Anand Sharma and union mines minister Dinsha Patel have sought withdrawing the duty, the finance ministry is unimpressed and wants it to continue.UK-based Stemcor's India subsidiary Brahmani River Pellets Limited has already announced the closure of its facility in Odisha.