The Hindu Business Line : East coast ports steeling for Chinese iron ore import cutback

Paradip, Haldia and Visakhapatnam ports are anxious over reports of probable cutbacks in Chinese imports of iron ore from India, prompted by the Centre's decision to hike duty on iron ore exports.

The country's three major iron ore exporting ports on the east coast — Paradip, Haldia and Visakhapatnam — are anxious over reports of probable cutback in Chinese imports of iron ore from India.

The Chinese move, according to the reports, is prompted by the Centre's decision to hike duty on iron ore exports. In 2006, China bought more than 74 million tonnes, accounting for about 84 per cent of India's total iron ore exports.

According to informed sources, the Chinese buyers, relying on spot markets, have reacted sharply to India's duty hike proposal. In China, mostly the small and medium steel mills go for spot buying to meet their demands.

"We are keeping a close watch on the situation," observe sources close to three east coast ports which together account for nearly one-fifth of the country's total iron ore exports.

"The impact may be more in the ports where the private exporters comprising both trader-exporters and mine-owning exporters dominate but much remains to be seen."

Vizag Unaffected

The private exporters are present in much larger number at Haldia and Paradip than at Visakhapatnam where the bulk of the iron ore traffic handled is for coastal shipment which may not be affected by the proposed hike.

The long-term Japanese buying routed through Visakhapatnam port, too, it is felt, will remain unaffected. The share of the private exporters in Visakhapatnam port's iron ore throughput is around 20 per cent compared to more than 80 per cent at Haldia and Paradip.

The downward revision of iron ore classification from 170 to 160, as proposed in the Rail Budget for 2007-08, it is pointed out, will not be of much help to the exporters. The revision has entailed about six per cent reduction in the freight rate. In money terms, it comes to a saving of about Rs 30 a tonne over a distance of 500 km, which is nothing compared to the Rs 300 per tonne duty hike. Worse, the Rail Budget has introduced 21 per cent congestion surcharge in regard to port traffic in place of the busy route surcharge of 10 per cent.

Still the Paradip Port Trust is not giving up hope. The optimism is based on the recent commissioning of the 99-km Tomca-Keonjhargarh section of the 155-km Daitari-Banspani rail network.

The commissioning is expected to help the iron ore exporters from the Keonjhar region in Orissa achieve substantial economy in the cost of rail transportation from the mines to the port. Compared with the road movement currently undertaken on a huge scale on the route, the economy will be much larger, it is pointed out.

Haldia dock authorities too do not seem very worried over the probable impact of the duty hike on the dock's iron ore throughput, as much would depend on the buyers most of whom, it is felt, might continue to buy even at a slightly higher price.

After all the difference will be of a few dollars only. As of now there is no indication of any letup in shipments through the dock. The exporters continue to place the demands for plots.

Margin Pressures

True, the private exporters may now have their margin under pressure but only by a small amount which, when compared to the super normal profits they have been earning so far, is insignificant.

Only a handful of small fly-by-night exporters might be hit by the duty hike, certainly not the established ones, it is emphasised. In other words, the duty hike is unlikely to deter either major buyers or sellers.

A spokesman for the Mormugao port, the country's largest iron-ore exporting facility on the west coast, however refrains from commenting on the issue, saying the duty hike being a government decision the port authorities would rather not say anything on it. In 2005-06, Mormugao port handled 25.3 million tonnes of iron ore exports out of the total traffic of 31.68 million tonnes. The corresponding figures for 11 months of the current fiscal are 23.49 million tonnes and 30.34 million tonnes respectively.

The shipments on long-term contracts basis, it is felt, are to remain by and large unaffected. But, then, even in long-term contracts, the exporters will have to absorb the additional duty burden and how long will they will do so is anybody's guess.

There is another point. Indian iron ore exporters having long-term contracts will have to compete with their counterparts in Australia and Brazil offering packages comprising competitive prices, efficient port operations and large average parcel loads in Super Panamax vessels. It is difficult to imagine a situation where India's exporters are offering even a matching package, let alone a better one.

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