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India’s low-grade iron ore key behind spurt in export demand | Hellenic Shipping News Worldwide

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India’s low-grade iron ore key behind spurt in export demand

Even as lockdowns across the world have crippled manufacturing activity, India’s exports of iron ore, vital to the output of steel, have been thriving.

Under pressure to keep steel furnaces running even when demand for finished steel products has come to a standstill, steelmakers across the world have turned to cheap, low-grade iron ore exported by India to keep costs under control and preserve margins.

India’s iron ore exports during Jan-Mar were at 8.9 mln tn, against 2.0 mln tn in the same period last year, data from the steel ministry showed. In 2019-20 (Apr-Mar), exports were at 25.14 mln tn, sharply higher than 16.2 mln tn the previous year.

Steelmakers need to keep their blast furnaces running at all times. If such furnaces remain idle, they tend to harden into a mass of solid iron which would need to be replaced with a new one, leading to huge costs. Therefore, the only way to minimise losses is to source cheaper grades of ore to keep the furnace running.

India mainly exports lower grade iron ore, with up to 58% iron content, to countries such as China, Japan, and South Korea. Export of over 58% iron content attracts 30% export duty and is, thus, widely used by the domestic industry.

India had already started stepping up its iron ore exports since last year to bridge the global supply gap, as flows from the world’s two biggest producers–Brazil and Australia–were on a decline.

Global iron ore supply had taken a hit after the Brumadinho dam rupture in Brazil led to decommissioning of all of Vale’s upstream tailings of over 40 mln tn. Further, BHP and Rio Tinto’s production in Australia were hit due to tropical cyclone Veronica. The disrupted supply from the two countries amounted to about 6% of the global iron ore market.

According to industry experts, supply from these countries is likely to remain lower going ahead, and preference for lower grade iron ore may pave the way to more iron ore exports from India in the coming months.

“Higher grade ore is preferred when profitability is high. Right now, Chinese steel mills are on a break, margins are hardly around 1-2%. In this case, they will try to get ore having a lower market price,” CRU India Steel analyst Atul Kulkarni said.

Iron ore with 56-57% iron content, which India offers, is currently being sold at $55-$60 per tn in the global market. Among the major buyers of the Indian-origin ore is China, which accounts for 85%, while Japan holds a share of 5.3% and South Korea 3.1%. Oman, Turkey, and Nepal are the other key buyers of Indian iron ore.

According to industry experts, India has the potential to export more iron ore due to increased domestic supply and competitive prices. In the previous financial year, miners ramped up output to optimal levels ahead of the expiry of mining licences for more than 30 iron ore mines, accounting for almost 30% of India’s output, in March. Of around 25 non-captive iron ore mines, 22 were successfully auctioned in February.

The country’s iron ore production rose to a decade-high of 220 mln tn in 2018-19 (Apr-Mar), up 9.5% on year, CARE Ratings said. During Apr-Dec, output is estimated to have surged 17% on year to 174.7 mln tn, it said.

Iron ore producers increased production due to expectation of a supply crunch this year. However, the outbreak of the deadly COVID-19 weighed on the country’s steel demand and consequently that for the ore.

Market participants believe that after inventories with miners decrease, further production of iron ore would come under pressure due to weak steel consumption in the domestic market.

“There is going to be a contraction of up to 18-20% in steel demand in the current fiscal which would lead to a production loss of roughly 20 mln tn. This production loss in steel will boil down to lesser iron ore demand by up to 38-39 mln tn,” assistant vice-president and associate head of ICRA Ltd Ritabrata Ghosh said.

According to industry experts, steelmakers should focus more on export of pellets, since it not only attracts no export duty but is also a value-added product. Moreover, pellet prices also have a premium over ore price, which increases profitability of the producer.

“The idea is not to sell the ore but the pellet form should be encouraged. We have a capacity for pellet making where we are running at its 30-35%. In that sense, it can always be jacked up and pellets can be exported where India can smartly enter into that market. There is absolutely no problem,” former steel secretary Aruna Sharma said.

Iron ore pellets have a better heat resistance index than the ore itself and are used as a substitute in blast furnaces in countries where lump ore is not available. India’s pellet manufacturing has shown signs of nascence and has greater potential in the export market, even after supply from Brazil and Australia normalises.
Source: Cogensis

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