Increased mining royalty in India is discordant with market realities.

A proposed hike of 5% in mining royalty has evoked shrill from the industry already on tenterhooks with escalating cost and poor finished demand.

Reportedly the hike is just a matter of time before the rate is increased. Government has worked doggedly on the premise that most of miners are making windfall profit which is barely contributing to the exchequer. However the bureaucratic grind has taken decision which is completely out of sync with the present market.

India has lost badly on export of iron ore after the unearthing of irregularities and hike in export duty to 30% thereby the revenue loss too has been lost to that extent.

Secondly with the global iron ore price on the roll recently coupled with the collapse in INR v/s USD has escalated the cost of Indian mills heavily depending on imports.

Given the weak demand for steel, mining companies such as NMDC and Sesa Goa will not be able to pass on the entire increase in iron ore mining royalty to steel manufacturers, which will lower the profitability of these companies.

This increased cost will partially take away the gain that these companies may realise from the fall in the rupee. The realisations of mining companies are linked to global iron ore prices, which are given in dollar terms while their costs are rupee-linked.

Source : steelguru.com