Jun 22, 2016

Iron ore exporters hope for another 15% cut in rail freight rates

Iron ore exports are expected to get a push with an anticipated 15% cut in railway freight rates next month. “Abolition of the dual railway freight structure for iron ore has aided exports. Now, the railway ministry is contemplating to slash freight by 15%. This will incentivise iron ore exports and make it more competitive in the international market”, said an industry source.

The rail freight rate for iron ore transport is now Rs 300 a tonne for both import and export. Its export was six million tonnes in 2015-16, a 25% jump over the 4.8 mt in 2014-15. Before the 2016-17 Budget which announced the removal of a 30% export duty on low-grade ore (iron content less than 58%), exports were uncompetitive.
The Federation of Indian Mineral Industries (Fimi) has demanded the 30% duty be removed. It says ore stocks are rising in the resource-rich states of Odisha, Jharkhand and Goa. Fimi estimates the stockpile at pit heads at 150 mt by the end of March this year. Of this, it said, 85 mt were of fines, for which there are hardly any takers. Domestic demand from the steel, sponge iron and pellet industries is not adequate to absorb the production. Fimi says the remedy is export and the duty should go for grades of ore.

The union mines ministry, however, is not keen to remove the export duty on high-grade ore, in the face of strong protests from steel companies and pellet makers, the users.

Of late, the cut in rail freight rates, coupled with recovery in iron ore prices in China, had enthused exporters. “Miners are now getting better realisations after the railway freight rate for export was equalised with domestic movement. A weakening rupee has also enabled exporters to fetch better prices. Exports of ore have turned profitable, compared to the scene two months earlier, when mining forms were struggling to recover the cost of production,” said a senior official at one.

Export of iron ore fines (62% iron) is yielding profit of $2.9 a tonne for mining companies in Odisha. The CFR (cost and freight) China price for this grade was $56 a tonne. For low-grade fines (with Fe content below 57), the margins were much better, at $5.2 a tonne.