Railways slashes iron ore freight rates to boost exports

KOLKATA: The Indian Railways has slashed the cost of transporting iron ore for exports for the first time since March 2012 by levying a flat distance-based charge across all slabs in response to "significant changes in the market".

The new distance-based charge has been set at a uniform Rs 300 for all slabs and will be effective from September 8 for iron ore exported for production of iron and steel and cement, the Railway Board said in a circular. The revision comes as the domestic mining sector struggles to get back on its feet after a three-year lull amid a steep fall in commodity prices over the past few months. The move is part of the railways' dynamic pricing policy , which reviews charges in step with market rates. Since March 2012, the distance-based charges (DBC) ranged from 10% to 125% of the base freight rate, plus Rs 1,125 for distances up to 700 km. The charge for distances above 700 km was Rs 1,125 earlier.

"There has been significant change in market of export of iron ore and hence the issue of DBC has been reviewed. Accordingly , the central government has accorded sanction for revising the distance-based charge leviable on booking of iron ore traffic meant for other than domestic consumption over all distance slabs," the Director, Traffic Commercial (Rates) of the Railway Board said in the circular dated September 1, 2015.

Although the industry welcomed the revision, the decision may not have a significant impact on volumes due to the prevailing export duty.

"It is positive step and will benefit mines in the eastern region since freight rates have come down from Rs 2,950," said R Kishore Kumar, CEO (Iron Ore Business) at Vedanta. "It will boost exports to Japan and South Korea. However, our fight still continues on account of export duty and our taxes, which are among the highest in the world."

Between 2012 and 2015, India's exports of iron ore plunged by over 80% to a few million tonnes from 90 million tonnes. In May this year, the export duty on low-grade ore with 58% iron content was cut to 10%, while the rate was maintained at 30% for higher grades. Prices of Goan grades of ore have crashed to $40 now from a peak of $140 in 2012, when the Supreme Court imposed a ban on illegal mining.

Reeling under subdued demand and low capacity utilisation, pellet manufacturers had sought a revision in distance-based charges while looking for ways find a market in exports.

"The initiative is aimed at reviving exports, but we do not expect any big impact due to a crash in global prices, the existing export duty and high logistics costs," said ND Rao, chief of the Pellet Manufacturers' Association of India, which represents interests of the industry with 90 MT of installed capacity . "The government needs to distinguish between a mined product like calibrated lump orelumps and pellets, which is a manufactured product and attracts excise duty ."