Pellet makers urge government to remove 5% export duty

KOLKATA: Pellet manufacturers have urged the government to remove export duty on pellets imposed by the previous UPA regime, saying it has nearly throttled the young industry. Coming under the aegis of the Pellet Manufacturers' Association of India (PMAI), the apex body of pellet companies in the country, petitioned the union commerce ministry to remove the duty. The move comes at a time when the new Modi government has started holding discussion with various industry bodies ahead of its first budget expected to be presented in July this year.

Pellets, which are typically spheres of 8-18 mm diameter made out of iron ore and theses are used as raw material in blast furnaces in steel plants, are manufactured products that attract excise duty of 12.5%, the PMAI said, adding that value addition in these products is high as 100%.

However, with steel industry facing a downturn, lower domestic demand of pellets has resulted in lower capacity utilization of less than 50%, whereas globally, average utilization of pellet capacity is nearly 80%. This has led to a lot of burden on the industry. In this situation, the sudden imposition of 5% duty earlier this year, acted as a major deterrent for exports. PMAI said it has requested the government to withdraw the duty to ensure optimum capacity utilization and also prevent the industry from facing financial stress. Pellets are spheres of 8-18 mm diameter made of iron ore and which are used as raw material in blast furnaces.

Earlier, in the union budget 2011-12, the government had reduced customs duty on capital goods required for setting up pelletisation and beneficiation plants from 7.5% to 2.5% to encourage use of low grade iron ore. This triggered a spate of large investments into pellet capacity. As a result, pellet capacity went up to almost threefold to 62 million tonne (mt) in FY14 from 23.5 mt in FY12. This was financed by an investment of nearly Rs 25,000 crore, most of which was financed through bank loans. "The adhoc and sudden change in policy threw these investments into jeopardy and raised questions about policy stability, " the PMAI said in its communication to the commerce ministry.