India raises export duty on iron ore, China remains in focus

The Indian government imposed a 50% export tax on all grades of iron ore on Monday, causing a brief upward knee-jerk reaction for prices.

Local iron ore majors BHP (ASX: BHP) and Rio Tinto (ASX: RIO) hit intraday highs of around 2.5% on Monday, before closing just 1% higher.

The initial concern was that export tariffs will squeeze Indian exports and push prices higher. However, the market quickly came to the realisation that the heavy duties will have a minimal impact on Chinese steel supply. 

China has already been reducing its imports from India, and can easily be replaced by other sources, according to Global Times.

Indian producers are expected to fall on hard times as its domestic market struggles to come to terms with additional duties.

"Exports will stop from India with the high costs," an Indian pellet producer told S&P Global Platts. 

"With the excess capacity in the market, pellet plants may shut down. The domestic Indian market will be unable to take the extra supply originally meant for exports. Iron ore prices in India will drop and pellet plants will shut down to not produce at a loss."

Back to China

Turning over to China, traders said the main issue is demand, not supply.

Punishing lockdowns across Shanghai and other provinces has taken a massive toll on the Chinese economy, with industrial output falling at its fastest pace since 2011 and vehicle sales dipping -48% in April.

JP Morgan downgraded its China GDP forecast again on Tuesday, now expecting June quarter GDP to contract -5.4% compared to previous forecasts of -1.5%.

China has not yet wavered from its goal of 5.5% GDP growth this year, and expected to unleash more than US$5.3tn worth of stimulus to bring life back into the economy.

Its interesting that we live in a world where the worse the current economic data, the greater the expected future stimulus.

Will more money pull China out of a potential recession? Only time will tell.