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September 08, 2008


Indian Railways cut port levy on iron ore for local use

BL reported that freight rate for iron ore is set to come down further with Indian Railways deciding to remove the 30% port congestion surcharge levied on the mineral meant for domestic use.

The move is set to benefit steel companies such as Essar Steel, Ispat Industries and Vikram Ispat which do not have captive mines. These companies depend mainly on rail transport for moving raw material to their steel plants.

A fortnight ago, Indian Railways had shifted iron ore from class 180 to 170. The reclassification had resulted in freight cut of ore by 4% to 5%. According to industry sources, the move to remove the port congestion surcharge would act as an added cooling effect on the economy. The government has been fighting inflation due to rise in prices of various raw materials. However, the port congestion surcharge on iron ore meant for exports would continue to remain at 100%.

A senior Rail official said that "We have done every possible policy change to bring down inflation in prices of domestic steel. However, iron ore for exports would continue to attract 100% surcharge as the companies command a significant margin outside India due to surge in global steel prices."

The proposed changes follow a series of high level government meetings over finalizing a steel package to contain inflation. The reduction in railway freight was also discussed last month in a meeting of committee of secretaries, and the finance minister had also met the concerned secretaries for taking steps to cut input costs.

Iron ore constitutes an important cost element in the entire process of steel making. Raw material prices often constitute 30% of the cost of steel. With iron ore prices rising 100% in a year and expected to rise further, India Railways’ initiative is expected to reduce cost pressure on the steel sector.

Indian Railways transported 53.59 million tonnes of iron ore for exports in 2007-08 up by 37.9% YoY as against 38.84 million tonnes of iron ore transported in 2006-07.