Finance Minister Arun Jaitley on Thursday, told Parliament that duty on low grade Iron ore (less than 58% Fe content) exports from India w.e.f 01 June, 2015 will be 10%, which is 30% at present.
In an interaction with miners/exporters, we received a mixed response over this. Exporters feel that duty cut will not have any significant impact in short term, looking at continual decline in Chinese Iron ore prices and monsoons ahead. While miners said, “it’s a good move by Indian government. Though, not immediately, but this would start benefiting us from the second half of this fiscal year.”
Exporters have been waiting for Iron ore e-auction sale by Goa government, which has been halted since Nov 2014 due to weak Iron ore prices in China.
If we analyze, it will be observed that 10% export duty, 30% District Mineral Fund, 10% on Iron ore research and 2% for exploration development makes a total of 52% on taxes and duties. In balance 48%, they have to mine and move the material to port and jetty point, pay port charges from jetty to port and for loading into the vessels. This simply does not work.
Considering Fe 57% Iron ore fines prices at USD 45/MT CIF China (which shall be offered via e-auction and are lying at jetty) and freight charges at USD 9/MT, break even prices stand at nearly INR 1,110/MT. As of now, low demand has pulled down freight rates. Once they improve, profits shall go down.
We tried to calculate a break even price for Iron ore fines (less than Fe 58%) lying at jetty in Goa, which shall be offered for sale via e-auction.
Break-even Price for Fe 57% Iron ore fines on Ex- Jetty basis (E-auction sale)
| Particulars | USD/MT | INR/MT |
| CNF Price for Fe 58% Fines | 45 | 2,835 |
| Less: Freight (Panamax) | 9 | 567 |
| FoB Realization | 36 | 2,268 |
| Costs: | ||
| A. Export Duty ( 10% of FoB) | 3.6 | 227 |
| B. Handling & Stevedoring | 7 | 440 |
| C. Royalty (auction material,13.5%) | 2.1 | 132 |
| D. WMT to DMT (8% moisture) | 2.6 | 164 |
| E. Miscellaneous (Interest + Cess + Other expenses) | 3.1 | 195 |
| Total Costs | 18 | 1,158 |
| Ex-Jetty Price | 18 | 1,110 |
INR vs USD = 63
Fresh Mining In Goa
Resumption of fresh mining in Goa may take place in Q3 FY16. With new MMDR act, which imposes additional 15% District Mining Fund (DMF) and 2% National Mineral Exploration Trust (NMET), exports will not be profitable for Goa based miners, until and unless either Iron ore prices in China move up or INR depreciates against USD.
Goa State Pollution Control Board (GSPCB)
What needs to be done is expedite the GSPCB consent to operate the Beneficiation plants, so as to improve the grade. This grade can be supplied to Indian Steel plants, who are today resorting to imports of Iron ore.
In the domestic market itself i.e. Dolvi, Hazira etc, Iron ore sale serviced via barges and trucks will help to explore a huge market, provided the focus on promoting beneficiation also takes place, other than export market only.
Also, it seems difficult that GSPCB will give green nod/clearances to Goa mining leases under the Air and Water Pollution Act by mid June, after studying river carrying capacity. This is because new circular by MOEF says that Ore cannot pass through village roads. So, new bypass roads will have to be constructed which requires at least a year.
Moreover, low international prices doesn’t support capital expenditure. Four seasons data for studying river carrying capacity should take minimum one year, apart from consultation and receiving reports.
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