Iron ore exports: Long-term implications

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Iron ore exports: Long-term implications

The government has hastily decided to export iron ore, perhaps to offset the depletion of forex reserves in view of the spiraling oil costs. But is it prudent?

CJ: Vishnu Mohan

Fri, Dec 08, 2006 00:00:00 IST

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IN COMMON PERCEPTION, it makes more sense for a country to export finished goods rather than raw materials. However, the views of the government seem to differ at least on the issue of exporting iron ore from India.

Minister of State for Commerce Jairam Ramesh recently said there should be “no fear” that the government plans to export iron ore would be at the cost of domestic industry. It was also mentioned sometime ago that since India imports the bulk of consumed crude oil at prevailing international market price – roughly 75 per cent of foreign exchange reserve is spent on import of crude oil – and to offset this, it is wise to export iron ore which would somewhat balance the foreign exchange outgo.

JJ Irani, former chairman and MD of Tata Steel, has gone on record, saying that the government should immediately stop export of iron ore, as its requirement for the domestic steel industry has gone up manifold. This has happened owing to the rapid infrastructure development in the country, which will further escalate the domestic demand for iron ore. Even B Muthuraman, managing director of Tata Steel, has voiced his concern over the ore export.

The government favours export of iron ore based on the following reasoning:

The government does not see any adverse impact on the total reserves of iron ore in the country, as in the last 25 years there has not been "aggressive exploration". Eight billion tonnes of reserves have been discovered. The government holds that with the help of more modern techniques, the quantum of ore would only go up.
The proportion of exports vis-a-vis total production was not alarming because Australia and Brazil exported a higher proportion of iron ore.
Underlying the importance of this sector, six states, including Orissa, Jharkhand, Chhatisgarh, Karnataka and Goa, depended on iron ore mining for developing their backward areas. It also provided direct and indirect employment to 15 lakh people.
Most of the exported ore comprised concentrates and fines while lumps were kept for domestic consumption.
Fines is an inevitable product of mining and is an environmental hazard and therefore the only option is to export them.

Some of the relevant questions to ask are:

When the crude oil price in international market was hovering around 18 to 20 dollars per barrel for many, many years, before the upward spiral started, why did the government fail to anticipate the price that we are paying today of $60-70 per barrel, resulting in precious foreign exchange outgo?
Is the government again committing a mistake by continuing to allow export of iron ore to earn little foreign exchange to offset the depletion in foreign exchange reserves? A recent study by a responsible agency indicated that by 2020, the reserves would be over. Therefore, the government’s contention that perhaps by investing in exploration, we could find more reserves is not good enough reasoning.
We would all love to see government exporting more and more of finished goods made out of steel like cars, buses, tractors, corrugated sheets, cold rolled bars and much more and earning precious foreign exchange than by exporting iron ore.
After 20 years, it could happen that our steel manufacturers may have to import bulk of iron ore from outside due to depletion in the domestic stocks.

Some facts & figures

India is among countries with largest deposits of iron ore. Brazil tops the list. Comparing the two, Brazil’s iron ore export policy had been in the context of that country having a modest population and low steel consumption of 13-14 million tonnes, which is likely to touch 20 million tonnes at its peak. In contrast, India has a population of 1.2 billion. Its potential demand for steel has been pegged at 300 million tonnes.

JJ Irani has again mooted the idea of increasing the per capita consumption of steel in our rural areas as well (in urban areas, the per capita consumption is going up very fast).

With huge infrastructure plans on the anvil, we all expect a jump in the demand for both steel and cement. Therefore, the government needs to rethink on the export of iron ore. Also, the government’s contention that iron ore fines being an environmental health hazard are fit for export, is flawed. The country today has access to latest technological devices and competent entrepreneurial talent, which can be leveraged to make use of such fines to produce value-added products, which could be exported and consumed in-house as well. A deeper study is needed.

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Posted comments (3)

	Dear Sir, Kindly give us your updated best offer for 40000-60000mts of India Iron Ore Fine 63.5% (rejection below 62.5%) on FOB or CFR China main port basis along with some information about seller asap.Also give us your updated best offerGrade: 60%; Rejection: 59%61-60%- 62-61%-63-62% Below two main terms & conditions are required as MUST - Seller needs to issue the non operative PB 2% after signing the Contract first, only then we buyer can issue the operative LC to make the non operative PB activated. - 98+2% payment termsbrayer will not accept any offer without past BL ,SGS POP, and shipper ,company profile. Best Regards,Anil ModiAtulit Impex Pvt. Ltd.FE 424, SALT LAKE CITY,SECTOR III, KOLKATA - 700106, IndiaFax : +91 33 2441 6042, e-Fax :+1 801 7602333Mobile : 00 91 98307 71822TELE : +91 33 4008 6159E-Mail : atulit@atulitimpexin dia.comE-Mail : atulitimpex@yahoo.co mWebsite: www.atulitimpex.comSKYPE : atulitimpex
	\| 21 January 2008 Reply to Comment \| New Comment \| Report Abuse

	Most the the deposit of iron ore are confined to Jharkhand, Orissa. Besides SAIL, NMDC , OMC , TATA etc major deposit is under the control of petty Private lease holders. They have not explored the deposit systematically. It is only on the paper that so much of iron ore reserves are available in Jharkhand and Orissa sector. Gradewise reserves have not been proved so far. In this connection Govt of India should take over all the deposits from Private holders and long term exploration programme should made like coal. A separate Govt company should be established who will do the exploration work. After that real picture will be come up how much gradewise reserves of iron is available. Accordingly policy should be made for exporting the gradewise of iron ore. At present every thing is going unsystematically
	\| 29 March 2007 Reply to Comment \| New Comment \| Report Abuse

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