As we have reported earlier, Indian government removed the dual freight policy levied on export of iron ore and pellets.
Let’s see what will be the impact of removal of dual freight duty on exports of ore from Odisha as well as for NMDC.
Exports of high grade and low grade fines from Odisha
Exports from Odisha, the largest iron ore producing state, had remain unviable due to higher freight charges. Also, Indian government measure to abolish export duty to nill on exports of iron ore below Fe 58%, did not benefited much to Odisha based miners due to higher freight charges.
As the Indian government had removed the dual freight charges policy, the new freight charges for exports from Paradip Port applicable would be around INR 800/MT.
Cost analysis of exports of Fe 62% fines and Fe 57% from Odisha
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Export of Fe 62% fines from Odisha |
Export of Fe 57% fines from Odisha |
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| Particular | Prices | Particular | Prices | ||
| In INR | In USD | In INR | In USD | ||
| Mining Cost | 700 | 10.5 | Mining Cost | 700 | 10.5 |
| 15% Royalty + 30% DMF + 2% NMET | 252 | 3.7 | 15% Royalty + 30% DMF + 2% NMET | 168.5 | 1.8 |
| Ex-miner cost | 952 | 14.2 | Ex-miner cost | 868.5 | 13 |
| Mines to railway siding charges + loading into wagons |
300 | 4.5 | Mines to railway siding charges + loading into wagons |
300 | 4.5 |
| Cost loaded into wagons | 1,252 | 18.7 | Cost loaded into wagons | 1,168.5 | 17.5 |
| Freight | 800 | 12 | Freight | 800 | 12 |
| Port handling Charges | 350 | 5.2 | Port handling Charges | 350 | 5.2 |
| Export duty@ 30% | 720 | 10.8 | Export duty | Nill | Nill |
| Moisture @ 4% | 124 | 1.8 | Moisture@ 4% | 93 | 1.3 |
| Loaded to Ship (FoB Cost) | 3,246 | 48.7 | Loaded to Ship (FoB Cost) | 2,411.5 | 36.2 |
| Hedging cost | 133 | 2 | Hedging Cost | 133 | 2 |
| Discount of Indian ore | 200 | 3 | Discount of Indian ore | 200 | 3 |
| Final cost (FoB, Paradip Port) | 3,579 | 54 | Final cost (FoB, Paradip Port) | 2,745 | 41.2 |
1 USD=66.6. INR
Source: SteelMint Research
Thus, it can be seen that for exports of Fe 62% fines from Odisha, the breakeven cost is USD 54/MT, FOB, at which the exports is becoming viable. Alongside, for exports of Fe 57% fines, where export duty is zero, the breakeven cost is at USD 41.5/MT, FoB.
NMDC iron ore exports of Fe 64% fines under LTA
NMDC, under its Long Term Agreement with South Korean as well as Japanese mills exports high-grade ore to them. The agreement is for around 3 years and the company is likely to export around 3.8 to 5.5 MnT iron ore per annum.
Cost analysis of exports of Fe 64% fines to South Korea and Japan
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NMDC iron ore Fe 64% fines export |
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| Particular | Prices | |
| In INR | In USD | |
| Prices of Fines, Fe 64% (loaded into wagons) | 1,660 | 25 |
| 15% Royalty + 30% DMF +2% NMET | 339 | 5 |
| Other charges | 100 | 1.5 |
| Miner cost | 2,099 | 31.5 |
| Freight | 1,200 | 18 |
| Port handling charges | 350 | 5.2 |
| Export duty @10% | 365 | 5.4 |
| Moisture@ 4% | 160 | 2.4 |
| Landed cost (FOB, Vizag Port) | 4,174 | 62.5 |
1 USD= 66.6 INR
Source: SteelMint Research
NMDC, under LTA for exports of iron ore to these countries, have the exemption of 20% export duty and only 10% duty is levied. Thus, for the current fines prices for Fe 64%, the net realization for exports would come around INR 4,164/MT, which will be at USD 62.5/MT.
Hence, from the above cost analysis of exports from NMDC as well as from Odisha, removal of differential freight policy would be much beneficial for NMDC as compared to exports from Odisha as the net realization for NMDC is more profitable than the exports by Odisha based miners.