Chinese environment policy puts hurdle on iron ore export from India

2014-03-28

Iron ore exporters from Goa may face daunting task ahead for shipment of the newly purchased steelmaking raw material through online auctions due to restrictions imposed by Chinese recently passed environment law. The strict Chinese environment law may also affect iron ore sales through online auctions in Goa.

The state government of Goa conducted two auctions in the last one month to dispose off little over two million tonnes of iron ore of the total unsold inventory of around 11.5 million tonnes. While steel mills stayed away, traders and exporters dominated participation. Auctions for the remaining quantity are scheduled for shortly.

"Exporters have been facing problems already for non - receipt of clearance certificates from the state government which they expect to get by the end of this month. They are still awaiting exports certificates from the state government without which exporters cannot start export process," said Shivanand V Salgaocar, President, Goa Mineral Ore Exporters Association (GMOEA).

During the last one month, since the first round of auction for 5.45 lakh tonnes was conducted on February 17, iron ore dynamics have changed significantly. The prices of iron ore declined by 13% from $126 to $100 a tonne.

"Iron ore exporters are going to make loss with fall in overseas prices. But, they can hold the quantity for markets to take a favourable turn. Unlike steel mills that purchase raw material for own consumption, traders and exporters can wait for executing any orders until market sentiment improves. This is the difference between a manufacturing company and a trading unit," said Salgaocar.

Indian iron ore exporters face high export duty of 30%, which make them uncompetitive in overseas markets. Apart from that, the government of China has put strict environment regulation in place which restricts steel mills to purchase low grade iron ore from anywhere in the world including India.

Declaring war on pollution Chinese Premier Li Keqiang said, "It is not uncommon for air pollution in parts of China to breach levels considered by some experts hazardous. Curbing pollution has, therefore, become a key part of efforts to upgrade the economy, shift the focus away from heavy industry and tackle the perennial problem of overcapacity.

"Since Goa produces only low grade iron ore, the recently approved Chinese government's law will affect Goan exporters badly," said Haresh Melawani, Chief Executive Officer of H L Nathurmal & Co, a Goa based iron ore miner and exporter.

Iron ore deposits in goal are mainly of low grade with between 45-60% of iron (Fe) content, which requires beneficiation to convert into high grade pellets for direct use in furnace.

Therefore, miners will have to set up forward integration or steel mills for backward integration to convert iron ore into pellets. Since, Goa does not have any steel mills now, there is a huge opportunity lies ahead for pellets plants going forward.

"Goa iron ore miners are already considering setting up pellets plants for which capital expenditure will be an issue. But, that is the only future for survival," said Melwani.

Source from : Business Standard

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