China to suffer more if India bans iron ore exports

In a latest statement from the steel secretary, Atul Chaturvedi, it was proposed that a ban should be imposed on exports of iron ore so as to preserve the non-renewable energy resource for local industry.

However, the commerce secretary differed the view saying, We should not ban iron ore exports, as about 80-85% of iron ore exports are in the form of iron ore fines and not as iron ore lumps. Iron ore fines are hazardous to environment. And by exporting it, the country is not only helping environment conservation but also earning valuable foreign exchange, Rahul Khullar, commerce secretary, Ministry of Commerce, Government of India was quoted as saying.

India exports nearly half of its annual iron ore production. The country produced 226 million tonnes of iron ore in 2009-10 which was up from 215 million tonnes produced a year ago. Most of the exports are directed to China; hence if a ban was to be imposed, China would face the most consequences of it.

Already gripped into the sluggishness of economic growth, the world's third-largest economy posted a lower GDP growth rate of 10.3% in the second quarter down from the first quarter's explosive 11.9 percent growth, the National Bureau of Statistics revealed on Thursday.

The impact is so dire on the economy that the country may look to curtail its imports mostly of iron ore, industrial components and other goods. Further, the country will be the biggest loser in case if India advances with a ban on iron ore exports. With imports getting stopped from India, China would need to depend on Australian and Brazilian iron ore imports, which would cost more compare to Indian imports.

However, recently China itself is in the contractionary mode as the data showed that Chinese iron ore imports continued falling for the third consecutive month and dropped 9% to 47.2 million tonnes in June from 51.9 million tonnes in May. Imports fell 15% YoY from 55.3 million tonnes a year earlier. However, the imports rose 4.1% from a year earlier to 309.3 million tons in the first half of this year.

India has the world's largest reserves of iron ore, nearly half of which is consumed by domestic steel industry. Chaturvedi is of the opinion that India's steel industry has long been lobbying for a ban on iron ore exports for better availability of raw material at lower prices for domestic plants as most of them are on an expansion mode.

India is believed to nearly double its steel production to over 120 million tonnes by 2012, up from the existing 70 million tonnes.

Even if China continues with its reduced imports of iron ore, there will be tremendous pressure on prices due to Indian export ban, which will lead global iron ore prices to shoot up.

Alternatively, the steel secretary has also proposed a higher tax on iron ore export from India, in absence of a complete ban on the same. India has been adjusting export tax on iron ore whenever deemed required.