Markets cheer hike in iron ore export duty

Mumbai: Shares of six steel product makers rose on the Bombay Stock Exchange on Tuesday after the government increased export duty on iron ore lumps to 10% from the earlier 5% and imposed a 5% export tax on iron ore fines.

Shares of Ispat Industries closed 7.75% above the previous close (Thursday last week, since the markets remained closed on Friday, December 25, and Monday), JSL Ltd was up 4.78 %, Bhushan Steel 1.77 %, Tata Steel 1.02%, SAIL 0.46 %, and JSW Steel 0.08 %.

The government’s move is being seen as a small victory for domestic steel makers who were expecting a rise in iron ore prices. India is the world’s biggest producer of iron-ore and is also one of the biggest exporters of the ore, especially to China.

According to JP Morgan, Asia Pacific equity research report, “Indian iron ore export prices are more a function of China’s demand supply dynamics than India's cost structure and hence, the ability of Indian iron ore exporters being able to pass on the export tax should be a function of China's demand.” “The export taxes could modestly lower costs for the DRI-steel producers. However the March quarter tends to be the strongest quarter demand-wise for the long steel producers,” the report added.

Of the country's total iron-ore output which is estimated at over 200 million tonne, India exports around 95-100 million tonne per year, mainly in the form of fines and lumps. Nearly 80% of India's iron ore exports go to China and the balance to South Korea and Japan.

As per the latest data for the current financial year, Indian iron ore exports for the 7-month period (April to October 2009) increased by 21% in volume terms year-on-year to 53 million tonne, mainly on account of China.

Steel players have already started hiking steel prices, considering a rise in raw material prices of iron ore and coking coal. Tata Steel and state run Steel Authority of India Ltd have already hiked the long product prices by Rs 1,500 to Rs 2,000 per tonne. Others, including Ispat industries, JSW Steel, Essar Steel and Bhushan Steel are considering a price hike from January. The raw material negotiations will start in January next year and the new contract price of iron ore is expected to be about 10-25% higher than the last year.