India, Australia's Iron Ore Tax Measures to Add Cost for Chinese Steel Mills

May 5 -- The recent measures on the iron ore tax taken by the Indian and Australian governments will increase import costs of Chinese steel mills and trade firms, analysts said.

India's Finance Minister Pranab Mukherjee announced recently that the country will raise its export tax on iron ore lumps to 15 percent from the anterior 10 percent. The Indian government increased the export tax of the ore lumps to 10 percent from 5 percent in December 2009.

In addition, the Australian government announced Sunday its plan to raise the taxes for the resource firms and according to the plan,which starts from July 1, 2012, the iron ore exporters including BHP and Rio Tinto will need to pay a 40 percent tax on mining profits.

Hu Kai, analyst from the Unmental.com, said that currently, most of the iron ore China imported from India is iron ore powder and about 20 to 30 percent are lumps. India's decision to raise the tax aims at providing the country's domestic steel mills with more iron ore.

India's decision to increase the export tax may restrain China's purchase amount of the iron ore, but since most iron ore China imported from India is powder, the impacts will not be significant. However, this move signals that India's restrictions on export of resources might become a concern for China and whether the government will raise the tax for the powder, local media reports said.

Analysts believe that under the current situation in which suppliers have not been able to meet the demand, the mining firms may transfer their rising costs to the prices of the iron ore exported.

Currently, Australia and India are China's largest and third-largest iron ore importer with both countries having a nearer distance with China compared with Brazil, China's second-largest ore importer.

According to the statistics from Mysteel.com, a domestic steel consultant and information provider, the iron ore stocks in the major ports of the country were 69.02 million tons last week, an increase of 420,000 tons compared with a week earlier, while the iron ore imported from Brazil had a decrease of 240,000 tons while those from Australia and India increased 110,000 tons and 400,000 tons respectively.

Moreover, as early as 2007 when the Indian government began to levy tax on exported iron ore, the global iron ore price and freight rose.