COMMENTARY – India losing billions of dollars in iron exports as opportunity slips

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Photo courtesy: BHP Billiton

In the heat and dust of elections, what appears to have missed the public eye is a lost opportunity worth billions of dollars for India’s iron-ore exports.

Few political leaders appear to be talking about it except for those in the tiny western state of Goa, where the economy has been brought to the brink in wake of a Supreme Court Order cancelling mining leases.

The impact however, is going to be felt nationwide as combined with meagre exports from all over, what India stands to lose is $8-10 billion this year — an amount that could have relieved the strain on current account deficit due to soaring oil prices.

Globally, iron-ore prices have shot up by 40% year-to-date at around $95/ton and expected to push to $100 in coming months as shipments from second-largest producer Brazil to China have dropped sharply in wake of a mining dam collapse.

The hit to seaborne shipments have turned bigger as cyclones in largest producer Australia have hurt its production.

With a near-term recovery in iron-ore production in two of the world’s largest producer looking highly unlikely, India was ideally positioned to take advantage of this opportunity as until a few years ago it was the third-largest exporter of iron-ore mainly to China.

The expected loss of around 30 million tons following a court-ordered shutdown of Brazil’s Brucutu mine could have easily been filled by exports from Goa alone, which used to have exports of well above 30 million tons until a few years ago when production got snarled up in legal and environmental issues in what was one of India’s most progressive states.

However, the bad news does not stop at Goa alone. The southern state of Karnataka also used to produce around 30-40 million tons until irresponsible mining practices led to court mandated restrictions nearly halted shipments.

From the position of a third-largest exporter, India—which was once the third-biggest exporter after  Australia and Brazil – has turned into a net importer of iron-ore last year.

Mining industry officials do not expect India to export more than 10-12 million tons of iron ore this year as a quick path out of the bureaucratic and legal tangle surrounding iron-ore production for the country looks unlikely. That export estimate is also probably on the higher side as it’s dependent on a Supreme Court order on a petition to allow limited exports.

By the time India wakes up to the opportunity hanging under its nose, Australia and perhaps Brazil would have probably resumed normal shipments in coming months, perhaps closing the door on what would have been an opportune time for India’s iron ore to re-enter world markets.

Bandini Chatterjee, the columnist, is an independent analyst focusing on the ups and downs of the commodity markets

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