The steel industry has called for an imposition of 30% export duty on iron ore pellets in view of rising exports in the face of ore shortage being faced by the companies.

At present, iron ore lumps and fines attract 30% duty, but there is zero duty on pellets. Exports of iron ore jumped 129% on a sequential basis to 5.33 million tonnes (MT) in Q2 of 2013-14 against 2.33 MT in Q1 of 2013-14. This has sent alarm bells ringing across the sector, especially at a time when iron ore production has come down by 14% to 70 MT between April-September FY14.

Arguing in favour of allowing steel exports while calling for restrictions in case of pellets, steelmakers pointed out there is no significant value addition by pelletisation. As per the Platts Index, the price of iron ore fines in China is $135 per tonne, while it is $165 for pellets.

Voicing the steel industry's concern, the Associated Chambers of Commerce and Industry (Assocham) has written to the finance minister P Chidambaram on December 18, 2013 saying growth in iron ore exports has been achieved due to the difference in duty on fines and pellets. On Monday, (December 23) The Indian Chamber of Commerce also shot off letters to the FM, finance secretary Arvind Mayaram, steel secretary G Mohan Kumar and commerce secretary SR Rao, raising its concern over the issue.

"Indian iron ore exporters are taking advantage of zero export duty on pellets and circumventing the exports of iron ore through pellets. This is further aggravating the already worse scenario of iron ore availability in the country.

There is a need to take immediate action to restrict the export of iron ore pellets. We urge you to impose 30% export duty on iron ore pellets in line with the duty on fines and lumps," Assocham secretary general DS Rawat said in his letter to the FM.

Steel plants in Karnataka need 30 MT, but the availability is not more than 15 MT. Pellets are made from iron ore fines and pellet producers bid for fines along with steel producers to buy iron ore fines. Bidders are now paying anywhere between 20% and 35% more than the base price to get iron ore fines due to the shortage.

Currently, pellets made from iron ore fines are used by the domestic steel industry. In such a scenario, if pellets are allowed to be exported it will only add to the shortfall in the domestic market since it will lead to indirect export of iron ore. Hence, pellet producers should be allowed to participate in e-auctions only if exports of pellets are not permitted.

India is currently importing both steel and pellets to meet domestic requirements which are worsening its current account deficit.