Steelmakers and iron ore miners which manufacture pellets are at loggerheads.
While leading steel players have called for an increase in export duty on iron ore pellets from existing 5% to 30%, miners are demanding nil export duty.
"We are of the opinion that the country stands to gain the most if its natural resources like iron ore are used by its domestic industry in order to add maximum value to the resources and generate employment.
In this context the export duty structure of iron ore pellets, which essentially is an agglomerated form of iron ore fines, needs to be similar to that of iron ore lumps/fines, in order to first meet the domestic requirement," said SAIL chairman C S Verma.
R K Goyal, managing director of Kalyani Steels, alleged that pellet export is just a way of camouflaging iron ore exports. He said that ore is scarce resource, especially after the prolonged mining ban and hence pellet export should be discouraged.
Most steel players such as Essar Steel, Tata Steel and Bhushan Steel have their own pelletisation plants while state-owned companies such as Steel Authority of India and Rashtriya Ispat Nigam do not use pellets as they use only high quality lumps.
Essar Steel managing director Dilip Oomen argued that there was high value addition in case of pellets, and due to lower domestic demand pellet plans were already operating at less than 50% capacity. "We feel current export duty of 5% should also be removed," he said.
Last month, Assocham argued that the export of pellets has risen to 1.5 million tonne (mt) in 2013-14 as against nil in the previous fiscal. According to the industry body, value addition in case of pellets is merely 20% as against 500% in case of steel, and there is a strict need to conserve this exhaustible natural resource.
Pellet Manufacturers Association of India (PMAI), on the other hand, argues that pellets already attract 12.5% excise duty, and the value addition is as high as 100%.
Two years back, the government had reduced customs duty on capital goods required for setting up pelletisation and beneficiation plants, which led to a huge investment -- of around Rs 25,000 crore -- in the pellet industry and a rise in installed pellet capacity to 62 mt in March 2014 from 23.5 mt in 2011-12.
"Most pellets are produced from low-grade ore which is not used by local steelmakers. None of the steelmakers are buying pellets as most of them have their own pelletisation plants. The lower domestic demand has resulted in lower capacity utilisation of less than 50% against global average of 80%. The lower capacity utilisation has led to stress on the performance of the pellet industry," N D Rao president of PMAI, and managing director of Brahmani River Pellets, told dna.
Prakash Duvvuri, head of research at Ore Team, said increasing the export duty on iron ore or pellets is not in the interest of the country at this time when the global prices are far below the Indian factory prices. "So, increasing any kind of duty will hurt the whole trade," he warns.
Ashima Tyagi, senior consultant with Infraline Research, concurs. "Domestically, demand for pellets is low and they can never compete with lumps on price points. Pellet plants have also had issues sourcing iron ore during the slump in ore production. Such a policy move is also important from a long-term resource conservation planning perspective,"
An industry official said the key reason behind steelmakers' fierce demand for high export duty of pellets is the sentimentally inter-linked ore prices. "If pellet export duty is reduced, its exports will increase, which, in turn, would lead to hike in prices of ore fine and lumps. It may result in higher production cost for steelmakers."
Rao said the pellet manufacturers had asked steelmakers to sign long-term supply agreements to avoid price-related fluctuations and ore availability related issues. "We have not got any response so far."
"India can become a centre to make pellets and earn higher forex. Pellets can be exported to China, Indonesia, Malaysia and also to Oman, Iran and Turkey," he said.