India, the world’s third-largest exporter of iron ore, may boost shipments to China in 2012 after the federal government cut freight charges on the commodity to be transported by rail to ports for overseas sales.
Rates were lowered by as much as 30 percent to 1,125 rupees ($22.5) a metric ton starting today, the Indian Railways said in a statement on its website, without giving a reason. This is the first reduction in the charges in at least two years.
The cut is bullish for Indian exports and is an indication that the government has started loosening controls on the market, said Thomas Baldwin, an iron-ore, freight and steel trader with Deutsche Bank AG in London. Most of the iron ore from India will find its way to China, he said.
The move will benefit companies including Sesa Goa Ltd. (SESA), India’s largest iron ore exporter, and state-owned NMDC Ltd. (NMDC), the nation’s top producer. Asia’s second-fastest growing major economy increased freight rates and taxes on iron ore over the past two years to curb exports as prices of the steelmaking ingredient surged globally.
“The rate cut is welcome, but more needs to be done on the tax front, which is still very high,” R.K. Sharma, secretary general at the Federation of Indian Mineral Industries, said today without giving an estimate of how much shipments can rise.
India increased levies on local transport of iron ore by as much as 220 percent since March 15, 2010, to ensure supplies for domestic users. Export taxes on all grades of iron ore were raised twice in less than a year to 30 percent on Dec. 30.
The federation forecast on Jan. 2 that India’s iron ore exports would drop by 50 percent to less than 50 million tons in the year ending March 31 from 97.65 million tons a year earlier because of higher taxes and freight charges.
The price of 62 percent-content iron ore delivered at Tianjin port in China averaged $160 a ton this fiscal year, compared with $158 a ton last year, according to Steel Business Briefing. China is India’s biggest overseas iron ore market.
Iron ore demand from China’s iron and steel industry may be 1.13 billion tons by the end of 2015, the Ministry of Industry and Information Technology said on Dec. 7. An estimated 63 percent of the 1 billion tons of ore shipped by sea in 2011 went to China, according to UBS AG.