KOLKATA (miningweekly.com) – A triple whammy of a five-year production high, 20-month rupee exchange rate high and lower international prices threatens to nip in the bud the revival of India’s iron-ore exports.
At least three iron-ore miners, based in the eastern Indian province of Odisha, told Mining Weekly Online that the combination of these three negatives was so severe that not only could the revival in iron-ore exports be derailed, it could also mean a throwback to 2014/15, when India turned a net importer of the steelmaking raw material.
They pointed out that international iron-ore prices, which are down an estimated 25% since November currently hovering around $64/t CFR China (high grade FE content 63.5% and above), did not offer any positive margin to local exporters, which have to pay a 30% export tax.
The price blow has turned crippling with the Indian currency’s appreciation to a 21-month high against the US dollar. The rupee has appreciated close to 5.34% against the dollar since January 2017, trading at Rs64.14 a dollar. With rising inflow of portfolio investments in dollars, dealers forecast the currency will breach the Rs63-a-dollar level over the next few weeks.
The miner-exporters pointed out that discounting the currency impact, margin realisations from iron-ore export shipments to China averaged around $25/t in case of high grade iron-ore fines if international prices prevailed in range above $70/t to $75/t, factoring in payment of 30% export tax. However, with Indian export offers at current levels and even touching the $60/t mark as in last month, margins had been completely eroded for exporters.
While the net impact of the appreciating Indian rupee could be gauged only over the next few months, the miner-exporters said that going by the thumb rule, Rs 1 appreciation against the dollar roughly translated to 5% loss in margin realisations from export shipments.
It was pointed out that exports had become more unsustainable with Indian iron-ore production touching a five-year high at 180-million tons during 2016/17, following the previous peak of 207-million tons achieved in 2010/11.
With current export trend expected to reverse as fallout of low international prices and rising rupee, miners would be left holding surplus pithead stocks as most domestic steel mills were not equipped to use fines as feedstock for their blast furnaces.
India exported a mere 5.4-milion tons of ore in 2015/16 after a previous high of 127-million tons achieved in 2011/12. This was up at 24-million tons in 2016/17.
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