India: Iron ore prices remain unchanged even as Karnataka govt moots new minerals tax

• Market lacks clarity, miners withdraw offers
  
  
• NMDC keeps auction base prices unchanged amid uncertainty
  
  

In a move that has instilled uncertainty in the mining community, the Government of Karnataka has decided to levy a tax of INR 1/t on mineral-bearing areas in auctioned leases. For iron ore-producing regions specifically, an additional tax of INR 100/t will be imposed. In addition, for non-auctioned iron ore mines, the tax is far steeper, at three times of royalty. This has raised concerns among stakeholders in the mining and steel industries as the tax aims to increase state revenues but is likely to raise operational costs for miners and steel producers.

Domestic low-grade iron ore fines (Fe 57%) prices in Karnataka's Bellary region have seen minimal movements despite the announcement. BigMint's weekly index for fines (Fe 57%) remains unchanged w-o-w at INR 3,050/tonne (t) ($36/t) ex-mines Bellary (excluding taxes).

Additionally, the Fe 62% fines index also remains stable w-o-w at INR 4,900/t ($58/t) ex-mines Bellary, inclusive of taxes.

Industry sources indicate that demand for the steelmaking raw material in the region remains muted, contributing to price stability. Despite stable prices, trade volumes have been subdued. Buyers are reportedly waiting for clarity on the tax policy before making significant purchases.

A Bellary-based buyer told BigMint, "There has been no change in prices as miners remain silent on the matter of tax. However, prices are expected to rise in the near future. If the tax burden is passed on to customers, sponge iron manufacturers may be forced to shut down their plants and exit the market."

Iron ore miners that have significant operations in Karnataka will face potential revenue pressures if the tax is implemented. Miners have already refrained from actively offering in the merchant market due to a lack of price clarity as one of the miners from the region mentioned, "We have not made any offers at this time, but prices should remain at the current level. The tax bill has almost been finalised at the ground level and will soon be sent to the Governor for gazetted notification."

Rationale

• Zero (0) trades were recorded in this publishing window, receiving 0% weightage.
  
  
• Thirteen (13) offers and indicative prices were reported, out of which nine (9) were considered as T2 trades. Hence, this category was accorded 100% weightage.
  
  

Menahwile, NMDC Karnataka's list prices of iron ore fines (-10 mm, Fe 59%) and lumps (10-40 mm, Fe 59%) stood at INR 4,015/t ($47/t) and INR 4,728/t ($56/t), respectively, for the Donimalai auction on 19 December 2024. List prices remained unchanged from the previous price revision on 12 December.

The auction witnessed bookings of 132,000 t: 28,000 t of fines (Fe 59%) were booked at INR 4,025/t ($47/t) against the base price of INR 4,015/t ($47/t), while 104,000 t of lumps (10-40 mm, Fe 59%) were booked at INR 4,738/t ($56/t) against the base price of INR 4,728/t ($56/t).

Given the current response to the auction, one miner remarked, "It is too early to comment on the situation. The auctions are not going well, and bids have dropped significantly. The market remains highly uncertain."

Karnataka iron ore sales scenario (13-19 November 2024)

Outlook

The proposed mineral rights tax could have far-reaching implications for Karnataka's mining and steel industries. While short-term price stability in low-grade iron ore fines is evident, market participants are closely monitoring developments. Industry bodies are planning for consultations with the government to mitigate the tax's impact and ensure the sector's competitiveness, sources informed.