China Sees Limited Impact from India’s New Iron Ore Duty Hike-Shanghai Metals Market

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China Sees Limited Impact from India’s New Iron Ore Duty Hike

SMM Insight 02:32:37PM Jan 05, 2012 Source:SMM

SHANGHAI, Jan. 5 (SMM) -- India’s Consumption Tax and Customs Central Committee said in a report released Jan. 2nd that India’s iron ore export duty was lifted to 30% effective from Dec. 30, 2011, before which export duties for fine and lump iron ore were set at 20%. Steelease expects this move to bring limited impact on China, but India’s ore export will slip further.

The weak performance of the steel market has dragged Indian iron ore price from the highest USD 189.5/mt to the present USD 144/mt. After deducting freight cost, the FOB price is USD 129.5/mt. If the 20% export tax is also excluded, the ore price is USD 107.9/mt. Based on a 30% export duty rate, the FOB price has climbed about USD 10.8/mt or RMB 68.1/mt to USD 140.3/mt. The CIF price then climbs to USD 155.3/mt. As for the present market, such added cost is not likely to be transferred to buyers. Even if such cost is passed on, the production cost of steel will see limited gains.

Indian iron ore export plunged during recent two years as the country releases a series of policies to curb iron ore export. India exported the most 13.46 million mt iron ore in March 2010, this figure plummeted to 2.07 million mt in October 2011. Further more, China’s iron ore import from India is only 372 mt on average since July this year, which accounts for less than 7% of China’s total iron ore import. Besides policy changes, the rain season, which caused transportation difficulties, and weak Chinese demand also contributed to the plunge of iron ore import from India. Based on Indian iron ore’s percentage of 10.98% during the first 11 months of 2011, steel production cost of Chinese steel markers is only lifted by RMB 25/mt, which accounts for a quite limited 0.66% of the present steel billet price of RMB 3,760/mt.

Though the export duty hike will bring limited impact for China, its impact on Indian ore traders is catastrophic. The average iron ore production cost in India has already climbed to USD 100/mt previously due to higher export duties and transportation costs. After this duty hike, which added another USD 10/mt, many iron ore producers will be driven to the balance line. The new rate hike therefore will lead to a plunge in India’s ore export.

Chinese steel makers have been actively exploring overseas resources during recent years, with import origins expanding from 33 to 48. Contribution of non-mainstream iron ore origins also climbed from 15.8% in 2007 to 25.1% in November 2011. In addition, Chinese iron ore consumers have participated at least 63 iron ore investments overseas, gaining access to over 5.75 billion mt of iron ore resources and 270 million mt of iron concentrate, among which 60.02 million mt has entered production. Overseas iron ore resources therefore serve as a guarantee of iron ore supply for Chinese steel markers. Even if China’s import of Indian iron ore plunges in the future, China can still guarantee its iron ore supply by turning to other countries.

List of India’s Iron Ore Export Duty Adjustments
 
Fine
Lump
Before March 2007
No export duty
Mar-07
300 rupees (USD 7.2)
May-07
50 rupees (USD 1.2) for Fe content62%
300 rupees (USD 7.2) for Fe content
62%
300 rupees (USD 7.2)
Jun-08
0.15
15%
Oct-08
USD 4/mt
15%
Nov-08
8%
15%
Dec-08
0%
5%
Dec-09
5%
10%
Apr-10
5%
15%
Feb-11
20%
20%
Dec-11
30%
30%
Data source: Steelease
 

Key Words:  iron ore   India   China   export duty   steel maker 

China Sees Limited Impact from India’s New Iron Ore Duty Hike

SMM Insight 02:32:37PM Jan 05, 2012 Source:SMM

SHANGHAI, Jan. 5 (SMM) -- India’s Consumption Tax and Customs Central Committee said in a report released Jan. 2nd that India’s iron ore export duty was lifted to 30% effective from Dec. 30, 2011, before which export duties for fine and lump iron ore were set at 20%. Steelease expects this move to bring limited impact on China, but India’s ore export will slip further.

The weak performance of the steel market has dragged Indian iron ore price from the highest USD 189.5/mt to the present USD 144/mt. After deducting freight cost, the FOB price is USD 129.5/mt. If the 20% export tax is also excluded, the ore price is USD 107.9/mt. Based on a 30% export duty rate, the FOB price has climbed about USD 10.8/mt or RMB 68.1/mt to USD 140.3/mt. The CIF price then climbs to USD 155.3/mt. As for the present market, such added cost is not likely to be transferred to buyers. Even if such cost is passed on, the production cost of steel will see limited gains.

Indian iron ore export plunged during recent two years as the country releases a series of policies to curb iron ore export. India exported the most 13.46 million mt iron ore in March 2010, this figure plummeted to 2.07 million mt in October 2011. Further more, China’s iron ore import from India is only 372 mt on average since July this year, which accounts for less than 7% of China’s total iron ore import. Besides policy changes, the rain season, which caused transportation difficulties, and weak Chinese demand also contributed to the plunge of iron ore import from India. Based on Indian iron ore’s percentage of 10.98% during the first 11 months of 2011, steel production cost of Chinese steel markers is only lifted by RMB 25/mt, which accounts for a quite limited 0.66% of the present steel billet price of RMB 3,760/mt.

Though the export duty hike will bring limited impact for China, its impact on Indian ore traders is catastrophic. The average iron ore production cost in India has already climbed to USD 100/mt previously due to higher export duties and transportation costs. After this duty hike, which added another USD 10/mt, many iron ore producers will be driven to the balance line. The new rate hike therefore will lead to a plunge in India’s ore export.

Chinese steel makers have been actively exploring overseas resources during recent years, with import origins expanding from 33 to 48. Contribution of non-mainstream iron ore origins also climbed from 15.8% in 2007 to 25.1% in November 2011. In addition, Chinese iron ore consumers have participated at least 63 iron ore investments overseas, gaining access to over 5.75 billion mt of iron ore resources and 270 million mt of iron concentrate, among which 60.02 million mt has entered production. Overseas iron ore resources therefore serve as a guarantee of iron ore supply for Chinese steel markers. Even if China’s import of Indian iron ore plunges in the future, China can still guarantee its iron ore supply by turning to other countries.

List of India’s Iron Ore Export Duty Adjustments
 
Fine
Lump
Before March 2007
No export duty
Mar-07
300 rupees (USD 7.2)
May-07
50 rupees (USD 1.2) for Fe content62%
300 rupees (USD 7.2) for Fe content
62%
300 rupees (USD 7.2)
Jun-08
0.15
15%
Oct-08
USD 4/mt
15%
Nov-08
8%
15%
Dec-08
0%
5%
Dec-09
5%
10%
Apr-10
5%
15%
Feb-11
20%
20%
Dec-11
30%
30%
Data source: Steelease
 

Key Words:  iron ore   India   China   export duty   steel maker