Chinese steel makers have threatened to boycott Indian iron ore

Chinese steel makers have threatened to boycott Indian iron ore after the Indian Government raised duty on iron ore

Excerpts from CNBC - TV18’s exclusive interview with VS Jain and Rahul Baldota:

Q: Is the Chinese threat so real?

Baldota : The threat is for real because they have already stopped purchasing. If you see in the month of March exports in the first 20 days have fallen by over 60%. There is no demand for iron ore from China now. The exports which are happening now are only the contracts which we finalised in the month of February.

Q: Bad news for a company like yours and good news for Indian steel manufacturers?

Baldota: It is bad news for company like ours, bad news for the country but good news for the steel industry since iron ore is available and they get lot of profits in their fold.This reduces their cost of purchase from a public sector company like National Mineral Development Corporation Ltd, or NMDC, which is how they look at it. For the country it is a huge loss, employment is a huge loss environmentally making a lot of effect, so this export duty is a very bad decision.

Q: What is the view from a user of iron ore?

Jain: I have exactly the opposite view. We believe that iron ore is a very precious product and the entire value addition should take place within the country. Whenever something happens there could be some initial difficulties but the time has come when iron ore is required to be preserved. Unless corrective actions are taken and conservation is done over a period of time, with the type of demand that is seen within the industry, there will be suffering.

Q: Are you also suggesting that China is holding its iron ore resources and picking them cheap from country like ours?

Jain: It is a question of all economics because if the price level gets settled down, then commercial activity will take place and since the margins on iron ore in the last couple of years have been very high, it might have some marginal impact on the pricing but I believe that it is a move in the right direction - conserving and levying duty is the right way.

Q: Is it true that you are indeed interested in phasing out iron ore exports in due course of time and are looking at the Government levying a higher excise duty on iron ore exports from the current Rs 300 per tonne?

Jain: It may not be executed now but there should be a flexible approach in case Rs 300 duty is possibly not good enough to take care of the conservation efforts.The idea here is that the value addition should take place within the country.

Q: There has been all this talk about how iron ore needs to be used for domestic industry and then probably used for the export markets?

Baldota : Let me make it very clear that what is exported out of India is an exportable surplus; no domestic steel industry today is starving for iron ore. We have resources of 25 billion tonne - even at 200 million tonne capacity - which will be coming up in the future, we will have reserves for 100 years. So reserves for iron ore is not a constraint at all.

Value addition is good for every country but then every commodity has to be looked independently. I would suggest that there should be an export duty of Rs 6000 for exporting HR coils out of this country.

Second point is about the steel sector using iron ore. If you look at the major integrated steel producers either they have captive mines or linkages with National Mineral Development Corporation Ltd. In this country, 50% of our products are produced by secondary steel people who do not have captive mines and will not be given captive mines. These people depend on merchant mining companies for their iron ore lumps. By putting this duty effectively, we are killing the secondary steel people who produce long products, which are used in construction causing inflation further; so this duty of Rs 300 will really cause inflation tomorrow.