Finance minister has hiked duty on iron ore export to 20% in order to restrict export and conserve resources. The duty increase would hurt Sesa Goa, the largest private exporter of iron ore from the country

The finance minister today proposed to increase the export duty on all types of iron ore to a uniform 20%, a decision that will hurt iron ore exporters, particularly Sesa Goa.

Sesa Goa is the largest exporter of iron ore in the private sector and the company's stock price lost 7% (about Rs20) to Rs262.30 on the Bombay Stock Exchange today, while the benchmark Sensex closed up 0.69%.

Finance minister Pranab Mukherjee proposed to increase the export duty on "lumps" (one type of iron ore) from 15% to 20%, and the duty on "fines" from 5% to 20%, saying that iron ore is a natural resource that needs to be conserved. "Fines" constitute the bulk of exports from the country.

"The country's exporters of iron ore, those who mainly sell fines, will surely be affected by this increase in duty and Sesa Goa would be adversely hit as most of the company's business comes from the export of fines," Alok Kumar Nemani, analyst at Nomura Financial Advisory and Securities (India), told Moneylife.

Sesa Goa managing director PK Mukherjee declined to comment on the duty hike.
 

On the other hand, the finance minister has withdrawn the export duty on iron ore pellets, apparently to enhance exports after value-addition. Iron ore is the main ingredient for steel production.
 

Sajjan Jindal, vice chairman and managing director, JSW Steel, said, “The hike on export duty on iron ore fines and lumps to 20% advalorem is most welcome. I am sure that this will lead to greater value addition at home and encourage the domestic steel industry."

"This duty hike could also cause an increase in iron ore prices," Mr Nemani said.

India, the world's third largest iron ore producer, mined 218 million tonnes of iron ore in 2009-10 and exported nearly half of this. Sesa Goa is the country's largest producer and exporter of iron ore in the private sector. It exports almost 80% of its production, most of which is the "fines" quality of ore.

However, National Minerals Development Corporation (NMDC), another major iron ore producer, would not be affected much as the state-owned company exports only about 5%-10% of its production.

"With this increased export duty on fines, Sesa Goa's profitability would come down by 15%-18%," said an analyst from a Mumbai-based financial services company.

Steel minister Beni Prasad Verma was seeking a control on the export of iron ore, whereas major iron ore producing states like Orissa and Chhattisgarh were looking for a ban on exports.

The analyst said, "India has abundant reserves of iron ore, and export duty has been increased to preserve iron ore for the future."