Levy of export duty on pellets, a low-grade iron ore, is likely to benefit Sajjan Jindal’s JSW Steel but may affect brother Naveen Jindal’s Jindal Steel and Power adversely.
Last month, the government had levied an export duty of 5% on pellets, something JSPL is against but JSW fully supports. In fact, JSW is vociferously proposing to increase the duty to 30%, on par with that on export of iron ore. The duty which was levied on pellets by the government on January 27, is being opposed by JSPL, which wants it to be reduced to zero as was the case earlier as it is an exporter.
To oppose the duty, JSPL has teamed up with Ruias-controlled Essar Steel under the aegis of the Pellet Manufacturers’ Association of India (PMAI) that had recently urged the commerce ministry to revoke the duty. At the same time, JSW Steel has found support with several relatively smaller steel players such as Kalyani Steel and Mukand Steel who are opposing any reduction in duty.
Sheshagiri Rao, the joint managing director of JSW Group, said: ?Pellet manufacturing is nothing but agglomeration of iron ore fines to feed into the blast furnace. There is essentially no value-addition. Therefore, most companies that have pellet-manufacturing capacities are converting iron ore into pellets and exporting them at 5% and circumventing the 30% export duty on iron ore?.
He said that exports of pellets from India essentially means exporting iron ore in a physical form, which the government has always opposed. JSPL offers a contrary position. ?We manufacture pellets from low-grade iron ore fines. If we don?t use them, it will leave huge mountain of low grade fines at the mine heads. The government itself gave incentives to manufacture pellets and export it in 2011-12 by reducing import duty on equipments and reducing the export duty on pellets to zero. Then why is the sudden change?? asks Ravi Uppal, managing director, JSPL.
Uppal said the export duty on pellets is already adding R500 per tonne of cost to the final price, and then there is R650 per tonne per 250 kilometre of transportation levied by Railways. This is making Indian pellets unviable in the export market, and countries such as Australia and Brazil are gaining on India’s inability to sell.
JSW’s Rao said JSPL had set up pellet capacities for captive consumption. ?Now they don?t have enough capacity to consume it, so they want to export it,? he said, adding that JSW has an 8 million tonne per annum (mtpa) pellet manufacturing capacity at Vijayanagar in Karnataka and 4 mtpa coming up at Dolvi in Maharashtra and the company will consume the entire produce.