- Iron ore and pellet export volumes may drop in current financial year
- Prices of both materials fall sharply in domestic market
- Production from merchant pellet producers may take a hit
Morning Brief: The entire Indian steel industry is still reeling under the export duty recently imposed by the government.
How is the iron ore and pellets segment faring in particular since the extent of the duty was the highest on these two steel-making raw materials? SteelMint goes behind the scene to find out.
It may recalled that the government, late on 21 May, had slapped a steep 50% export duty across all grades of iron ore and 45% on pellets apart from 15% on other steel items. While there had been no export duty on pellets, a 30% duty had been previously levied on iron ore of Fe58% and above.
The duties were introduced to serve multiple purposes:
- To stall possible exports of high-grade ore as low-grade material. High-grade ore can be used directly in steel-making and it is thus important to meet domestic demand first;
- To contain high steel prices in an already inflationary environment brought about by the Russia-Ukraine crisis;
- To ease pressure on vessel availability and the consequent high freights through reduced export activity.
Impact of export tax on iron ore and pellets
Export volumes may reduce: Indian iron ore and pellet export volumes are expected to drop in the current financial year. India exported over 15 million tonnes (mnt) of iron ore fines and lumps and over 11 mnt of pellets and concentrates in financial year 2021-22 (FY22). However, SteelMint estimates that iron ore and pellets exports will drop to around 10 mnt in FY23, from a combined 26 mnt seen in FY22 — which would be a sharp 16 mnt shave-off.
Prices fall steeply: Prices of both iron ore and pellets have fallen steeply in the domestic market over the last three weeks. For instance, average monthly prices of Odisha iron ore fines of Fe 63%, in June (till date), plunged to a year’s low of INR 3,850/tonne (t) from a peak of INR 10,000/t seen in July 2021.
SteelMint’s Pellex (DAP, Raipur) has also dropped to INR 8,230/t from a peak of INR 13,810/t seen in March this calendar.
Merchant pellet producers feel the heat: Output from merchant pellet producers is expected to fall in this financial year. For instance, Karnataka-based pellets maker KIOCL has already announced a temporary shutdown of its 3.5-mntpa plant in Mangalore saying it is no longer viable to continue operations after the government slapped the 45% export duty on pellets. It is heard that other merchant producers are also reducing output. Consequently, SteelMint estimates that the total merchant production volume may take a 10-15% hit in the current financial year.
India’s total pellets production in financial year 2021-22 (FY22) was at around 77 mnt, as per SteelMint’s data. In this quantum, the share of captive producers comprised 41 mnt and the balance 36 mnt belonged to merchant miners. Exports were at around 11 mnt. Till April in FY23, the volume touched 6.58 mnt. India’s total pellet-making capacity in FY22 was at 110 mnt.
Mining activity may slow down: There could also be a decline in mining activity as the export tax will be a huge disincentive. Of course, the drop in iron ore production — as a result of lower mining activity — cannot be estimated at this juncture.
It may be noted that, as per SteelMint’s forecast, India’s iron ore production could rise around 6% to 265 mnt in FY23 from an all-time high of 251 mnt in FY22.
Outlook
The government may take a relook at the duty impositions sometime in the future. A high-ranking official from the Central Board of Indirect Taxes and Customs reportedly said that the government would “examine” the proposal of state governments and mining companies to revise the export duty on low grade ore to nil “at the right moment”.
Miners’ body Federation of Indian Mineral Industries (FIMI) has also sought removal of the export duty on low grade ore and pellets on the plea that India is losing its competitive edge in iron ore in global markets.
Iron ore and pellets conference: SteelMint Events will be hosting the 5th Indian Iron Ore & Pellet Summit on 3-4 August, 2022 at The Lalit, New Delhi. The conference will discuss key issues being faced by the iron ore and pellets industry in India. The focus will be on market dynamics, policy-related changes, growth challenges and enablers, sustainability and decarbonisation goals, the way forward and many more talk points.
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