Could India’s export tax on iron ore pellets bode well for Aussie iron ore miners?

India has raised export duties from 0 to 45 per cent of iron ore raw materials, unveiled a surprise 15 per cent tax on exported steel products, and increased duty on iron ore and concentrates from 30 to 50 per cent – all designed to reduce the cost of local steel production and curtail rising inflation.

The new export duties came into effect on 22 May, with shipments set to dive. According to Kpler, this means that India’s exports are likely to go down in April from 3.14 million tonnes to zero.

This is not the first time that India has imposed a restriction of this type; they recently placed a ban on wheat exports as prices soared due to Russia’s war in Ukraine.

To put this in context, April saw India achieve its highest-ever iron ore and pellet production at 246 million tonnes and 75 million tonnes respectively. China accounted for 75 per cent of these exports.

UBS expects Indian iron ore exports to be flat over the 2022 calendar year, which means that the incremental supply disruption reduces the risk of a sharp decline in iron ore prices in 2H22. This makes the assumption that the majors manage to increase supply by 40 million tonnes to 70 million tonnes from the first half to the second in 2022.

Analysts believe that BHP (ASX:BHP) is on track to meet its production guidance this year.

Ord Minnett notes the strong iron ore track record established by BHP in recent years, including achieving guidance in the last two financial years. This is expected to continue, following its petroleum divestment. In comparison, Rio Tinto (ASX:RIO) has downgraded iron ore guidance for seven of the past eight years.

BHP remains the broker’s favourite iron ore major, believing its exposure to copper is unparalleled with significant optionality in nickel. The acceleration of the diversified miner’s first production from its $5.7 billion Jansen stage 1 project supports this belief.

Sources: Bloomberg, FactSet