Another breather may be on its way for the country’s iron and steel sector. Around 15% reduction in the cost of transportation of iron ore by the Indian Railways in the Budget is likely and if that happens, it would be an unprecedented double-bonanza for the sector after the Railways abolished the dual duty rates.
The industry had been pressing for a change in the classification of iron ore to freight class 145 from freight class 165 now, arguing the fact since iron ore is just another raw material on the likes of coal and limestone, it should not be put in the same bracket as that of steel, which is a finished product.
A change in the classification will not only reduce the cost of transportation but also provide a demand fillip for the raw material and make the domestic steel industry to become more competitive.
Acknowledging that the industry needs hand-holding for some more time to tide over the present subdued phase, the steel ministry has taken up the matter with the Railways Ministry and several rounds of meeting have already taken place on the issue. The Railways Ministry, in its endevour to get more pie of the transport sector, is also sympathetic to the issue, sources said.
The freight reduction may also help enhance volume for the Railways also, which could compensate the revenue loss and thus, could be a win-win for both the Railways and the iron and steel sector. India, which produced 156 MnT iron ore in 2015-16, is likely to produce more iron ore as more mines start production.
Freight rates go up with the increase in freight class and the distance to be covered. For the first 1 km to 125 km, the difference in freight rate is around INR 28 per tonne.
The abolition of the dual freight policy rates for iron ore has helped the industry to look for the export market, where the rate was higher by INR 300 per tonne than for ore meant for domestic customers, once again with a renewed enthusiasm particularly after international prices for the raw material also started looking up.
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