Iron ore exports seen falling to 8-year low

18 Jul, 2011, Reuters

MUMBAI: Iron ore exports from India are likely to fall by more than a quarter to their lowest level in eight years because of higher costs and slow efforts in a key state to resume shipments, a Reuters poll showed.

Iron ore sales from the world's third-largest exporter are forecast to fall to 71.25 million tonnes in the current year to next March, from 95 million tonnes in the previous year, according to the median estimate in a Reuters poll of 10 iron ore miners, exporters and analysts.

That would be the lowest export volume since 2003/04 when shipments stood at 62.57 million tonnes.

"More tariffs and higher costs along with outright bans will further limit exports," said an iron ore trader with an international brokerage based in London.

Tight Indian supplies are expected to keep spot iron ore prices <.IO62-CNI=SI> firm, along with strong demand from top steel producer China. Prices of the steelmaking ingredient rose to record highs above $190 a tonne in mid-February.

India's Karnataka state, which accounts for about a quarter of the country's iron ore exports, banned shipments in July last year to curb illegal mining. In April, the Supreme Court ordered the state to resume shipments but, to date, exports have yet to resume with state officials citing technical problems.

Along with the ban, the federal government, in a bid to conserve the raw material for use by local steel producers, raised the export tax on iron ore fines to 20 percent from 5 percent. Indian Railways also hiked freight rates twice this year, making carriage costs five times more expensive than those for ore for local consumption.

"Production has come down and dispatches have also come down and everyone is losing, the railways, ports and the government," said David Pichamuthu, head of the Federation of Indian Minerals and Industry (FIMI) southern region.

Iron ore trade in India is worth about $15 billion a year and the country is the biggest supplier of the raw material after Australia and Brazil . Most of its shipments go to China , which has the world's largest steel industry.

Before the Karnataka ban, India's shipments had been rising steadily from a low of 37.27 million tonnes in 2000/01 to 105.86 million tonnes in 2008/09.

The Indian government estimates iron ore exports of up to 118 million tonnes for the current fiscal year, including government-to-government deals. Excluding those deals, FIMI has said it expects exports to reach 85-90 million tonnes.

Apart from higher taxes and restrictive policies, Indian iron ore exporters also have to contend with limited infrastructure.

Because of relatively small roads in Goa, the biggest exporting state in India, miners are only allowed to move shipments from six in the morning until six in the evening, said Glenn Kalavampara, secretary, Goa Minerals Ore Exporters Association.

Trade officials and miners said there is a greater push to produce pellets, the value added form of ore, after the federal government waived the 15 percent duty on exports.

Several miners have pulled investments together to start building plants to manufacture pellets, which are made by moulding ore powder into the desired castings.