India: Odisha’s iron ore production drops over 30% post-export tax

• State’s Sept output set to touch 1-year low
• Steel mills’ production cuts impact miners
• FY23 output revised downward for Odisha, India

Odisha’s iron ore production has dropped by over 30% post-the export tax imposition, SteelMint’s data reveals. From January-May (before duty imposition), the average production was about 13 million tonnes (mnt) per month, which dropped to about 8.5 mnt/month in June-September.

Also, the state’s iron ore production is slated to drop to a one-year low of 7.40 mnt in September 2022, as per SteelMint’s estimates. Such levels (7.4 mnt) were last seen in September 2021.

Odisha is the largest iron ore producing state in India’s, contributing over 50% of the total output. Over January-September, Odisha’s total iron ore output is likely to touch 100 mnt and over April-September, around 63 mnt.

Reasons for the drop in production

• Export tax repercussions: The imposition of the export tax on iron ore and pellets from the third week of May 2022 had a profound impact on the state’s iron ore production. The government slapped a 45% export duty on pellets from the previous nil and raised the same on iron ore from the existing 30% to 50% for all grades. This move stalled iron ore and pellet exports out of India. The miners faced a double whammy. Exports grinded almost to a halt on one hand, while domestic demand was dull. They had no option but to cut production in the face of poor offtake and sell whatever inventory they held.
• Monsoons dampen sentiments: The monsoons are traditionally a dull period for steel and thus iron ore sales too. Moreover, storing becomes an issue and thus miners usually prefer to lower production at this time of the year.
• Mills’ production cuts impact: The production cuts from the larger mills around June-July (in the face of the 15% export tax on steel and dull domestic demand) also had a deep impact on Odisha’s iron ore production. Data reveals that in June-July, iron ore offtake from the state dropped compared to production. For instance, Odisha produced over 11 mnt in June but dispatched 7 mnt. In July, production touched almost 9 mnt whereas dispatches were at about 8 mnt. This proved that mills consumed lesser iron ore on the back of the production cuts and were using inventory they were already holding.

However, from August, when mills resumed production, offtake levels also increased. August data shows that dispatches were higher at 9.4 mnt against a production level of 8.6 mnt and September dispatches are expected to be 9.3 mnt versus 7.4-mnt of production.

The trend from August also indicates that miners are averse to stocking and keen to offload as much inventory as possible hedged in by a stalled exports scenario while mills normalize production.

OMC output drops

Odisha Mining Corporation, the largest miner in the state, has shown a drop in production to 0.78 mnt in August, its lowest so far from January 2022. Its total production over January-August was at 21 mnt.

Outlook

India’s iron ore production in FY23 was expected to touch 260-265 mnt but is likely to drop sharply to around 240 mnt, with the export tax having such a strong bearing on the production scenario. This volume will again be influenced by Odisha’s production in FY23 which has been revised downward from around 150 mnt to 135 mnt. Many mines in Odisha were started in FY22 and were expected to reach full capacity in FY23. However, the export tax implementation may dissuade miners from running them at full capacity in the current fiscal. These include OMC’s Khandbandh, Banspani and Unchabali (with 1 mnt EC limit for each); ESL Limited Rengalibeda, Nadikasira and Nadidih (with EC limit of 7.45 mnt and 9 mnt, respectively); and Neelachal Ispat Nigam’s Kadalia and Mithrida (2 mnt).