Export and Import of Iron Ore

4.2.5.1 Export of Iron Ore increased from 93.79 million tonnes in 2006-07 to a peak level of 117. 37 Million Tonnes in 2009-10. Exports from India, however, have fallen to 97.66 Million Tonnes in 2010-11. About 90 per cent of India‘s iron ore exports are to China.

4.2.5.2 During 2010-11, export of iron ore declined mainly due to the ban on exports by Karnataka and the fiscal measures taken by the Central Government for restricting export of iron ore from the country.

4.2.5.3 Import of iron ore remains marginal and has increased from 0.49 million tonnes in 2006-07 to 0.89 million tonnes in 2009-10. (Table - 4.3 above)

4.2.5.4 Adequate iron ore supply from domestic sources at competitive prices is critical for realization of the potential growth of the steel industry in the country. The main concern of the Indian steel industry is to sustain the domestic iron ore advantage well into the future for continuing global competitiveness. If resource security has to be provided to intended investments in steel capacity, actions for conservation of resources are required to be taken right now. The high export demand in the past several years has driven up the production base in the country, leading to an output level far above domestic demand. Government has taken several important initiatives to discourage excessive mining to satisfy growing export market. These have so far included imposition of fiscal measures such as export duty, increasing railway freight for exports, etc.

4.2.5.5 Export of iron ore will have to be reduced in an orderly and phased manner so that the mining industry gets a breathing space to reorganize its business model. Actions should also be oriented towards planned development of mining capacity in a manner such that there is no compulsion to export surplus output. While the government has encouraged the growth of the

58 pelletizing industry, there will be a need also to monitor their exports, as iron ore may find way to the international market through this route indirectly.

4.2.5.6 With export restricting policies on iron ore and a potential fall in demand for Indian origin iron ore in China, iron ore production capacity will have to be augmented with sufficient caution to avoid over supply as diversion of export volumes to the domestic market is expected to take care of a large share of the incremental domestic demand within the country. At the same time, it should be noted that iron ore capacity enhancement projects take a long time to complete. Although, capacity is likely to be enhanced over the 12th plan period with the opening of new mines, actual supply to the market will depend on new capacities created in the non-captive segment, adequacy of infrastructure to handle movement of these ores, evolving situations related to legal restrictions on mining and movement of the ore and export potential.

4.2.5.7 Iron ore prices are totally free from government restrictions and are determined by the market forces of demand and supply and individual consumer‘s tie-up for supply with the iron ore producers. Moreover, because of the existence of a large export market for Indian iron ore, domestic prices of iron ore have generally moved in tandem with the international prices. While the production cost of iron ore varies in the range of Rs. 500 per tonne to Rs. 1000 per tonne, depending upon the life of the mine, capacity of the mine and equipments employed, the price of iron ore, ex-mine, has remained much higher than costs in the past few years. This has been one of the main reasons for the Indian steel industry clamouring for allocation of captive iron ore mines, as captive iron ore is most likely to reduce their cost of production substantially.

4.2.5.8 Costs of mining iron ore vary from mine to mine and depend on the mineralogy and other specific local factors. While mining costs on an average can be uniform, the costs of beneficiation may vary significantly from one mine to another. However, the main issues in delivered costs to the users are related not so much to the costs of mining, but, to the transportation of the ore as also rates of taxes, royalty, etc payable on mined material. Iron ore mining and transportation costs have risen manifold in the recent period. Iron ore prices have, likewise, risen through the 11th Five Plan period.

4.2.5.9 Price of iron ore has increased threefold since 2005 (after considering the increase in royalty etc.). Apart from rising costs of mining and transportation along with hikes in taxes & levies, the recent rise in iron ore prices can be attributed mainly to:

 Increases in domestic demand for Calibrated Lump Ore (CLO), and

 Adoption of the principle of global price parity for fines and other lumps by the major iron ore mining companies.

Iron prices in the spot market vary significantly from those set by the mining PSUs such as NMDC and OMC who fix their prices on quarterly basis

59 and make them public (Table – 4.6). The volatility in spot market is driven by local market conditions, differences in grade and transport costs.

Table – 4.6

Iron ore Spot Prices vs. NMDC Ex-Mine Prices (Up to January)

(Rs /T) 01.04.07 01.10.07 01.04.08 1.04.09 01.01.10 01.04.10 01.07.10 01.10.10 01.01.11 Baila Fines (-0mm)(64%): Source : NMDC (Ex - mines) 1209 1783 1970 1666 1936 2924 3356 3199 3366 Indian Fines* (63.5%)- Spot prices (F.O.B. at Port) *Source: Umetal.net website 2631.4 4582.4 5845.68 2872 4450.8 6163.2 6072.77 5994.73 6994.37

Note: Spot market prices are inclusive of transportation and other duties/levies.

4.2.5.11 Spot market volatility and market based pricing mechanism have led to higher costs in production of steel for all those producers dependent on the market for their iron ore procurement. This also has caused frequent disturbance in their business planning, apart from putting them at a disadvantage vis-à-vis those who have captive resources.

4.2.5.11 Despite the expected rise in domestic demand for iron ore, supplies may not fall short of demand given the abundant mining capacity and potential diversion of exports to the domestic market during the 12th Plan period due to the restrictive measures already taken by the government. The steel producers, however, may still face high prices till the end of the 12th Plan period, due to export linked domestic pricing mechanism, infrastructure bottlenecks, weaker mining capacity growth potential in the case of captive resources and problems related to land acquisition and social disturbance.

4.2.6 Development Issues & Policy Recommendations for the Indian Iron Ore