India may well reconsider an option it rejected exactly ten years ago - Banning export of iron ore unless it’s converted into a value added metal. A move which Indonesia has endorsed over the weekend, forcing global miners to announce plans to set up refineries in the mineral rich but heavy industry-poor South East Asian economic powerhouse.
Top officials in the steel ministry and planning commission who had a decade back argued that allowing Bellary-Hospet’s mineral riches to be exported to China without any value addition, meant losing out on job creation at home besides reducing export incomes which could come when ore is refined into costlier iron pellets or steel, had their ` Vous a dit si’ or `I told you so’ moment.
Top officials who said they would study Indonesia’s move to see how President Susilo B Yudhoyono’s move helps grow investment and export valuations, had ten years back opposed removing a cap on sale of high grade iron ore lumps and fines from Bellary-Hospet and Bailadilla mines. They had, instead, presented the then NDA Government with an alternate note which proposed encouraging those who wish to import ore from India to set up iron pellet making or steel-making capacity here.
Officials had also argued that ore exports, to China, if allowed, should be linked to barter deals for high grade coal from that nation as India was projected to spend huge amounts on import of in future years. Neither of these arguments were paid much heed to, instead the cap was lifted. The result : 1) India 's export of iron ore, sold at a tenth of the price of steel, zoomed by a 100 per cent in just 3 years to 100 million tonnes; 2) By 2012-2013, India was spending $ 18 billion in importing 137 million tonnes of coal compared to a couple of million dollars, ten years back.
After the Congress-led UPA government took over a rethink on the old policy started. However, once again the mining lobby won the day and ultimately, the government continued with its policy of allowing ores to be exported. Rules said only fines and lumps with low grade iron would be allowed to be exported. However, the reality which later Supreme Court appointed committees exposed was that high grade iron ore kept being shipped out of the country, with 80 per cent of it headed towards China.
China’s steel-making capacity based on iron ore imports from India, Indonesian, Australia and Brazil, doubled to 800 million tonnes a year in these 10 years. Imports from India and Brazil were especially prized as these were of high grade ore with iron content of near or above 60 per cent.
In sharp contrast, India's steel making capacity increased from 48 million tonnes in 2004 to around 78 million tonnes in 2014, a fraction of the amount of steel churned out by China, a nation with very poor iron ore resources.
Needless to say economists have long been able to trace a direct correlation to steel production and usage to a country's per capita income growth.
When current Himachal Pradesh chief minister Vir Bhadra Singh, took over as steel minister in 2009, he renewed the battle arguing in notes that India is a “major producer of iron ore, much of which we export at low price ... we should rather work towards a policy of encouraging value added exports which fetch us better revenues."
This was reiterated again last year by steel minister Beni Prasad Verma who argued that it "makes more sense to push exports of steel valued at $ 800-1000 per tonne rather than raw materials valued at $100-120 per tonne.”
Ultimately, it was the courts which stepped in to stall ore exports, but not on policy considerations but rather to stop rampant, illegal mining which could degrade the environment. The result, point out steel ministry officials, has been rather good for value-added iron pellet exports. While iron ore shipments declined drastically with total ore exports likely to be less than 30 million tonnes this financial year, compared to 62 million tonnes in 2011-2012. Iron pellet exports witnessed a boom, with most of it headed towards China. Exports of pellets which are the costlier replacement for ore in steel making, are likely to be nearly 800,000 tonnes in this financial year or 20 times exports in the previous 2012-2013 year.
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