China gobbles up iron ore from India after government withdraws duty
A reopening China trying to stoke domestic demand scooped up nearly all of India’s iron ore exports in December after New Delhi lifted export duty on the mineral a month earlier, commerce ministry data showed.
India’s iron ore exports to China jumped over 10 times to $153 million in December from $14.26 million in November when the Union government withdrew export duty on steel and iron ore. This was 98% of the total iron ore exports in December. The export in the category to China during December was also four times that in December 2021.
“Demand from China had taken a hit, and as China begins to open up after the end of the zero covid-19 policy, there has been a spurt in demand. We are yet to see if it is pent-up demand or if the demand is going to stay. If a similar trend continues in the next two months, it will be a good sign of recovery in China and elsewhere, too,” said Ajay Sahai, director-general of the Federation of Indian Export Organisations.
China’s home prices have been falling for the last six months as rising covid-19 cases depressed demand. Reuters reported that home prices in 100 Chinese cities fell for the sixth month in a row in December, declining 0.08% from a month earlier after falling 0.06% in November, according to China Index Academy, one of the country’s largest independent real estate research firms.
China has ramped up support for the industry to relieve a long-running liquidity squeeze that has hit developers and delayed the completion of many housing projects, further undermining buyers’ confidence, Reuters reported.
India’s decision to withdraw export duty had come amid signs of an export slowdown. Overall exports in December slipped 12%, led by flagging exports of engineering goods, gems and jewellery, cotton yarn and man-made yarn, as rising interest rates and fear of a global recession hit demand.
In an attempt to arrest runaway commodity prices, the government May 2022 imposed a 15% export duty on a range of finished steel products and increased export duty on 58%-and-above Fe-grade iron ore fines and lumps from 30% to 50%.
Meanwhile, overall exports to China between April and December slowed to $11.03 billion against $17 billion in the comparable period in 2021.
While the export slowdown was largely broad-based, engineering exports slipped sharply to $1.98 billion from $4.59 billion in 2021, commerce ministry data showed. China’s trade deficit with New Delhi touched a record $87 billion last year.
According to a Morgan Stanley report, the combination of an extended covid-zero policy and a likely recession in developed markets could result in a drag of more than 300 basis points on 2023 growth in China, the second largest economy in the world.
China’s slowdown assumes significance as it is one of India’s largest trade partners.
“China has already reduced significantly as a contributor to global growth both last year and this year, while the US, India and Indonesia, among others, have increased in importance. In fact, China contributed less than 20% to global nominal GDP growth in the past five quarters and even fell below 10% in 2Q22,” Morgan Stanley said in a report.