Iron Ore Exports From India Still not Viable Post Freight Reduction

Though central govt. has reduced Distance Based Charges (DBC) on iron ore exports from India significantly, viability of iron ore exports from India still remains low.

Central govt. in the year 2009 levied DBC on iron ore exports and later in the year 2011 increased the existing charges further by INR 100/MT with an objective to curb iron ore exports from India so as to fulfill the domestic requirement. The charges were further revised on 05 Mar’12. Exports have dropped from 105.9 MnT in FY 09 to 4.8 MnT in FY 15 due to falling prices and high cost of exports.

Central govt. yesterday revised the Distance Based Charges (DBC) on iron ore exports from India via Addendum-16 to RC-36 of 2009 which will be effective from 08 Sept’15. The freight rate circular has fixed a DBC of INR 300/MT over all distance slabs ranging from 0 to more than 700 kms which was comparatively much higher before. As a measure to boost exports over increasing iron ore production in India, the govt. has reduced the charges. Earlier this year, Indian govt. reduced iron ore export duty on low grade iron ore (less than Fe 58%) from 30% to 10% w.e.f 01 June’15.

However, inspite of reduction in DBC, iron ore exports seem to be unviable from India owing to weak iron ore prices in global market. Also, another reason which has kept exporters away from exporting iron ore is expensive plots at Paradip Port (which is distance wise nearest port to the mines.)

Below, is an estimated analysis of the difference in cost incurred in export of low grade (Fe 57%) iron ore fines from Paradip/Vizag Port before and after the revision of DBC.

Ex-mines prices inclusive of royalty 
Considering 1 USD=66 INR
Source: SteelMint Research