Steel prices may rise on hike in iron ore royalty
NEW MARKET-VALUE BASED SYSTEM TO ESCALATE PAYOUT 10-FOLD IN WHAT may impact the business plans of companies like Tata Steel, SAIL, Posco and LN Mittal group’s Mittal Steel, the government is preparing to introduce a new system of royalty for minerals that would result in over 10-fold increase in the payout to states on iron ore. The Centre is considering dumping low specific rates of royalty for major minerals and adopt royalty that would change with the ore’s market value (ad valorem). With iron ore prices doubling in the last few months, the new royalty could further depress the margins of steel companies and push up steel prices again. “The proposal on new royalty structure for major minerals including iron ore would come up for Cabinet approval at the Thursday meet. The move is aimed at increasing the royalty earnings of states that had to make do with lower specific rates for the last several years,” an official source said. As per the proposal, the royalty on iron ore would be fixed at ad valorem rate of 10% on all grades: lump, fines and concentrates. With iron ore prices at Rs 3,000-3,500 per tonne, the new system would substantially increase royalty payout. The present royalty rate on iron ore varies from Rs 13 per tonne to Rs 27 per tonne, depending on quality. Along with iron ore, the new system would change the royalty regime for limestone, zinc, bauxite, manganese, diamond and uranium. The minerals are used extensively by metal-based industry. The cost pressure on the industry from royalty would come even as prices of other raw materials like coking coal, refractories and ferro alloys has also increased manifold. While the new royalty rates would impact steel making and iron ore mining companies alike, it would enrich the states’ royalty earnings (on all non-coal minerals) by almost 100% from a level of Rs 2,014 crore (at 2006-07 production levels) to Rs 3,943 crore. The royalty collection from iron ore itself is likely to increase from Rs 247 crore to Rs 1,650 crore. Under the new royalty structure, the states would have to earmark 10% of the royalty earnings for infrastructure development and community benefit programmes. Moreover, the benefits would only accrue to states that do not impose or repeal additional tax/cess imposed on mineral-bearing areas.