Business Standard reported that it is sad Indian iron ore producers couldn't partake in the surge in iron ore imports by China in July as well as in the 27% rise in prices of the commodity since the beginning of June.

Mr HK Daga president of Federation of Indian Mineral Industries said that "The combination of 30% export tax, highly discriminatory railway freight and a large scale ban on mining has dried up iron ore exports, denying the country a major source of foreign exchange earnings."

Mr RK Sharma Secretary General of FIMI said that ”This is primarily due to China buying our iron ore fines, a product for which local demand is insignificant, that our exports hit a high of 117 million tonnes in 2009 to 2010. But lobbying by local steelmakers that this natural resource be preserved for local value addition led the government to apply many a brake on exports, which fell to 18.37 MT in 2012 to 2013.

With the noose tightening on exports and mines shutting in Karnataka and Goa, our iron ore production has fallen from a record 219 MT in 2010 to 2011 to 140 MT in 2012 to 2013. Other major fallouts are the loss in potential export earnings of at least USD 17.5 billion since 2010 to 2011, worsening of the trade deficit with China and a few Indian steelmakers being forced to import ore and pellets.”

China which wants to loosen the grip of big mining groups such as Rio Tinto, Vale and BHP Billiton on seaborne trade in ore has reasons to be disappointed with the rapid drying up of supply from India. What has caused much discomfort to New Delhi is the European Commission's inclusion of India in a small group of nations that protect domestic steelmakers by way of export restrictions and export duties on raw materials.

One wonders if this critical European Commission observation has anything to do with the commerce ministry making common cause with its mines counterpart for a major roll back in the export duty on iron ore. No doubt the government would have to take a call on whether the worrying current account deficit eroding the value of rupee should be a reason to lower iron ore export duty, brushing aside the objection of the steel ministry. Exports falling to about eight mt, delays in reopening mines in Karnataka and the mining ban in Goa would further restrict our ore production to less than 100 mt in 2013 to 2014.

As New Delhi procrastinates over the export tax rate, India has failed to benefit from the recent breakout in global ore prices after a long period of sluggishness. Spot 62% iron bearing ore stands at up to USD 141.8 per tonne, against USD 86.7 a year earlier. The marked improvement in prices, defying pessimism in most other commodities is due to the end of ore de stocking by Chinese steelmakers, an improvement in steel rebar prices at the Shanghai Futures Exchange and a fall in ore inventories at major Chinese ports from 100 MT per year ago to about 70 MT. Steelmakers and trading houses in China are, therefore, back in a positive area with new bulk orders for ore, a shot in the arm for prices.

Much to the joy of global mining giants, deceleration in economic growth has not come in the way of China spiriting away with high growth rates in steel production and, therefore, with ore imports. In the H1 of this year, China's steel production rose 7.4% to 389.87 MT with predictions the country would end the year with an output of 780 MT. Little wonder the country's ore imports in the first seven months rose eight per cent to 457.2 mt from the year-ago period.

The reasons for the rise in ore prices are to be found in an improvement in steel demand from China' construction and engineering sectors, owing to delayed take offs of most infrastructure projects sanctioned by Beijing in September 2012. At the same time, a few provinces are too participating in the economy-stimulation blitz, launching their own big programmes all good for steel and, therefore, for ore. The fact, however, remains Chinese steel companies are hardly making any money.

Therefore, high ore prices have become a major issue between China and mining majors. In a rare intervention, Mr Li Keqiang PM of China said to BHP chief executive Mr Andrew Mackenzie at a private meeting in mid June, when ore stood at USD 115 per tonne, to see that the mineral was sold at lower rates. In fact, China is using every forum to send the message that the mismatch between the strong profits of Australian ore exporters and losses posted by our steelmakers is not sustainable.