Bloomberg News

India Reduces Iron-Ore Export Tax, Scraps Flat Levy

May 03, 2007

India's government replaced the flat tax on exports of iron ore with one linked to the grade of the mineral after some Chinese steelmakers boycotted purchases of the commodity from the South Asian nation.

Shipments of iron ore fines with ferrous content of less than 62 percent will be taxed at 50 rupees ($1.2) a metric ton, Finance Minister Palaniappan Chidambaram told parliament today. The government on Feb. 28 announced a tax 300 rupees a ton all grades to ensure supplies are enough to meet domestic demand.

The tax prompted at least 10 steelmakers in China to halt imports from India, causing exports from the South Asian nation in March to fall by a third to 7 million tons. A lower tax may deter Chinese mills from seeking more supplies from Australia and Brazil, the world's biggest exporters of the commodity.

``This will help exporters especially from Goa who export low-grade fines,'' said S.B. Chauhan, who advises the iron ore federation. Goa, a western Indian state, accounts for almost 30 percent of India's exports of the commodity.

India was the third-biggest supplier to China in last year, providing about a quarter of 326 million tons of imports by the world's biggest steel-producing nation. India shipped 89 million tons of the commodity in the year ended March 31, 2006, of which 27 million tons were fines with a ferrous content of less than 62 percent, according to the federation.

Lower Profit

Sesa Goa Ltd. (SESA), India's largest non-state iron ore exporter, save 100 million rupees in tax because of the reduction, said Managing Director P. Mukherjee. The company, which agreed to be bought by the London-based Vedanta Resources Plc (VED), ships 400,000 tons of low-grade ore, or 4 percent of its total sales, he said.

A flat 300 rupees tax on all grades would have lowered the company's profit by 1.8 billion rupees in the year to March 31, 2008, Mukherjee had said March 1. The company paid 335 million rupees in tax in the fourth quarter ended March 31.

A panel set up by the government to overhaul India's mining laws had suggested a tax on exports of high-grade iron-ore lumps, instead of fines, because of poor domestic demand for the latter, the trade body has said. Steel Authority of India Ltd. and Tata Steel Ltd., the country's biggest producers, mine their own ore, forcing miners to export fines.

Out of every 100 metric tons of iron ore produced in India, 60 tons are fines and the rest are lumps.

Five straight years of increases, fueled by Chinese demand, have tripled global iron-ore prices. Rates for 2007 climbed 9.5 percent after rising a record 19 percent last year. Brazil's Cia. Vale do Rio Doce, BHP Billiton and Rio Tinto Group control two- thirds of the global iron-ore trade.

To contact the reporters on this story: Debarati Roy in Mumbai at droy5@bloomberg.net.

To contact the editor responsible for this story: James Poole at jpoole4@Bloomberg.net.


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