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

Even as Lockdowns across the world have crippled manufacturing activity,…

Even as Lockdowns across the world have crippled manufacturing activity, India’s exports of iron ore, essential to the outcome of steel, have been flourishing.

Under pressure Steel furnaces running 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 reduce costs and preserve margins.

Data from the steel ministry showed that 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.

In 2019-20 (Apr-Mar), exports were 25.14 mln tn, sharply higher than 16.2 mln tn the previous year.
Steelmakers will need to maintain their blast furnaces running constantly. They tend to harden into a mass of solid iron, which would need to be replaced with a new one resulting in huge costs if such furnaces remain idle. As a result, the only way to minimize losses would be to source cheaper grades of ore to keep the furnace running.

India mainly exports low-grade iron ore, with as much as 58% iron material, to countries such as Japan, China, 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 low-grade iron ore exports since last year to bridge the global supply gap, as productions 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 Vale’s upstream tailings of more than 40 mln tn. Further Rio Tinto’s and BHP production in Australia were hit due to tropical cyclone Veronica. The disrupted supply from both countries amounted to about 6% of the global iron ore market.

According to industry experts, supply from these countries is likely to remain lower henceforth, and preference for lower grade iron ore may pave the way to more iron ore exports from India in the coming months.
“Excellent grade ore is preferred when profitability is high. Currently, Chinese steel mills are on a break; margins are hardly around 1-2%. In this case, they will plan to get ore having a lower market price,” CRU India Steel analyst Atul Kulkarni said.

Indian low-grade iron ore and global market

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

According to industry experts, India has the potential to export more low-grade iron ore because of increased rates. In the previous financial year, In the previous financial year, miners ramped up output to optimal levels ahead of the expiry of mining licenses for over 30 iron ore mines, accounting for 30% of India output. 22 of non-captive iron ore mines were auctioned in February out of about 25 of the total non-captive iron ore mines.

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. The output is estimated to have surged 17% on year to 174.7 mln tn during Apr-Dec.

low-grade iron ore
iron ore

Iron ore producers increased production because of anticipation of a supply crunch this year. However, the deadly COVID-19 outbreak weighed on the country’s iron and steel demand.

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

According to a statement by the assistant vice-president and associate head of ICRA Ltd Ritabrata Ghosh, “There’s 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 lower iron ore demand by up to 38-39 mln tn.”

According to industry experts, Steelmakers should focus more on the export of pellets, since it’s a value-added product and does not require export duty. Moreover, pellet prices also have a premium over ore prices, which increases the profitability of the producer.

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“The idea is not to sell the ore, but the pellet form should be encouraged. We have a capacity for pellet making currently running at 30-35%. 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 stated.

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

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