India’s pellet production falls nearly 20%, m-o-m, in June on export duty impact

• Output drops over 10%, y-o-y, in June
• Merchant mills lower capacity utilisation
• Exports in June fall more than 90% on month

Production of iron ore pellets in India dropped by nearly 20% m-o-m in June to around 5.7 million tonnes (mnt) as against 7 mnt in May, as per data maintained with SteelMint. Production fell due to the sudden impact of the export duties imposed on steel and raw materials towards the end of May that affected merchant output.

Production in June also fell by about 11%, y-o-y, from around 6.35 mnt in June 2021. Total production in Q1FY’23 stands at over 19 mnt, slightly lower compared to the year-ago period. However, the country’s pellet output increased to over 40 mnt in the first six months of 2022 (H1CY’22) – higher than around 38 mnt recorded during the same period of last year.

Steel major AM/NS India emerged as the leading pellet producer in H1CY’22 at nearly 8 mnt, followed by JSW Steel at over 5.5 mnt and JSPL at roughly 4 mnt.

India’s pellet capacity has risen at a fast pace in recent years to around 120 mnt, as per SteelMint estimates. The integrated steel plants in the country are the major producers and captive consumers of pellets. Capacity-wise, JSW Steel (including subsidiaries) tops the list at 27 mnt followed by AM/NS India at 20 mnt, JSPL at 10 mnt, while Tata Steel has a capacity of around 7 mnt.

India’s pellet production in FY’22 was in excess of 77 mnt, of which around 11 mnt was exported.

Factors affecting production

• In May the government imposed a steep 45% export duty on pellets from zero previously with the objective to control inflation, soaring steel prices and to ensure higher availability for the domestic industry. As a result, the fear of surplus availability of pellets and iron ore in the domestic market and the direct impact on prices forced many mills, especially merchant units, to lower capacity utilisation and opt for maintenance shutdowns. Many mills that are reliant on the export market reduced production in June.

• India’s pellets exports fell to just 84,000 t in June, down 92% on the month from 1.05 mnt in May, SteelMint data shows. The duty has rendered exports unviable. Weak steel demand in China, which accounts for around 80% of India’s pellet exports, has affected sentiment, especially at a time when global iron ore prices have dropped rapidly and there are no enquiries for Indian pellet cargoes amid declining steel margins and profitability in China. Export shipments are set to decline further, it is believed.
• With a 45% tariff on exports, domestic realisations for producers are higher than exports and so producers will focus solely on the domestic market.

Outlook

The sharp fall in exports is bound to affect the productivity of the merchant mills and export-oriented units that are likely to lower their output. However, to compensate for the loss of the export market producers are exploring new domestic markets, with mills based in eastern and central India selling pellets to Gujarat and south India, as SteelMint recently reported.

Pellet production should continue at a steady pace in the coming months due to higher demand from the sponge iron sector. Trade activity in the key markets started gaining momentum from the last week of June due to a marginal recovery in steel and sponge iron demand post export duty imposition. Also, pellet is preferred to iron ore during the rainy season because of its low moisture content. Therefore, it is expected that production in Q2FY’23 should recover from June levels.