India Imposes Iron Ore Tax Increase

According to a recent Steel Market Intelligence Report, the Indian Finance Ministry announced a 5 percent increase in export taxes on iron ore. The hike was made during the quiet holiday season. The taxes on lump ore will increase from 5 to 10 percent, and fines will have a new export tax of 5 percent.

Michelle Applebaum, principal of SMI, notes that the move “is a direct shot at Chinese steelmakers, who are bidding up spot ore prices to record levels and most probably accumulating inventories ahead of attempted price negotiations with the iron ore majors.”

This move is also another example of what Applebaum calls “resource hoarding” – countries placing export restraints on key raw materials, which is trade distorting and illegal under WTO.

Going further, the taxes will have a two-fold impact. First, restraining exports of key raw materials lowers the price of these inputs to the local market and in effect subsidizes domestic producers who would otherwise have to pay market prices for these inputs. Second, keeping the raw materials off the global market raises the price to non-domestic producers by restricting the global supply of these key raw material commodities.

While the Indian press is already misunderstanding the move, Applebaum opines that when China, Brazil and Australia return after the Christmas holiday, the world will notice that this move is a direct shot at the Chinese steel mills, “which we believe have been building stockpiles of ore in advance of ore price negotiations coming after the first of the year.”

“Spot ore prices have reached new highs in recent weeks, and we suspect that the Indian move is targeted not only at helping domestic Indian mills by keeping more ore inside the country but also at the disruptive effect of Chinese stockpiling and import – which could end up being a temporary trading move aimed at the iron ore majors,” Applebaum adds.

India – like other BRI nations – has long been invested in leveraging its low-cost ore position into expanding its local steel industry rather than enhancing its position as an ore exporter. We believe that this move is consistent with the country’s longer term steel policy, and expect to see further moves in order to minimize the export of ore to China. Michelle Applebaum