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SMM Analysis of India's Increase in Iron Ore Export Tariffs
May 23, 2022 11:20CST
Source:SMM
SHANGHAI, May 23 (SMM) - India to impose an export tariff of 50% on iron ore fines and lumps, and 45% on pellets

SHANGHAI, May 23 (SMM) - India to impose an export tariff of 50% on iron ore fines and lumps, and 45% on pellets

According to the Ministry of Finance of India, in order to ease the high inflation level in India, the Indian government issued a policy to adjust import and export tariffs on steel raw materials and products on May 22. Previously, India imposed a tariff of 30% on lumps with a grade of 58% or higher. According to the new policy, a tariff of 50% will be imposed on both fines and lumps, and 45% on pellets.

India has adjusted its export tariffs on iron ore several times since 2009, and the increase in export tariffs this time is the highest level in history.

India's iron ore production in 2021 was 246 million mt, with more than 50% from Odisha

India's iron ore supply is mainly concentrated in the four federal districts, namely Odisha, Chattisgarh, Karnataka and Jharkhand, which account for 97% of the total iron ore production in India.

Sources: IBM, SMM, public data

According to foreign media reports, Odisha, India’s largest iron ore producing area, will increase its annual iron ore production capacity by about 54 million mt in the next few years; the Indian government issued a statement on May 17 saying that Odisha Mining Corporation (OMC) has started operating three iron mines in the region. Therefore, India's iron ore production will continue to increase in 2022.

India's iron ore exports were 40-50 million mt, of which 80% was exported to China

Sources: WSA, SMM Database

Since India announced the increase in iron ore export tariffs, the export volume of iron ore has dropped sharply; however, in recent years, the export volume of iron ore has begun to increase again. In order to meet the demand from domestic steel industry, India raised export tariff, thus India's iron ore exports will start to decrease.

The export data of Indian iron ore comes from the World Steel Association, and the data on India’s iron ore exports to China comes from the General Administration of Customs of China. Therefore, there may be a certain deviation in the data from 2009 to 2022. Generally speaking, the proportion of Indian iron ore exports to China is basically maintained at around 60-80%.

Among the varieties of iron ore imported by China from India, low-grade fines and pellets account for a relatively high proportion. In 2021, China imported 33.56 million mt of iron ore from India, of which fines accounted for 73%, and pellets accounted for 21%. 

The impact of higher export tariffs

India's increase in export tariffs will affect its export volume. Since India's annual export volume is 30-50 million mt, accounting for only 2-3% of the global iron ore trade volume, it is difficult to have a great impact on the global trade. 

Although China's iron ore imports from India only account for 3-4% of total iron ore imports, India account for about 30% of China’s pellet imports. Therefore, a 45% export tariff on pellets will further push up the premium of pellets.

In the past, India mainly exported low-grade ore fines with grade below 58%. Currently, low-grade ore with grade below 58% will be subject to a 50% export tariff; due to the current low profit of steel mills, mills raised the proportion of non-mainstream iron ore, mainly Indian fines. The increased tariffs will lead to a shortage of low-grade non-mainstream iron ore fines, which will lead to further reductions in discounts for low-grade ore.
 

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