Indian pellet export prices have increased sharply last week on improved demand from overseas buyers amid less seaborne pellet supply. Pellet export reference price assessment is at around USD 122-123/MT, FoB India. Prices hovering are at nearly 4 years high as these price levsl were last seen in May-June’14.
Why are Indian pellet export prices increasing sharply?
• Strong demand for prompt deliveries by POSCO: South Korean major steel mill – POSCO is aggressively looking for Indian pellets. As per sources, the plant is undergoing some technical issues, rendering increased need of prompt pellet cargoes to fulfill the demand. This has resulted in increased buying of pellets by the steel maker.
• Supply constraints at LKAB: Pellet supply has reduced in global market over Swedish miner – LKAB (EU largest iron ore producer and 2nd largest producer in seaborne pellet market) declaring a force majeure. The fire broke out in Norwegian railways has resulted in temporary supply cut by the miner. As per reports, LKAB is world’s 2nd largest producer in seaborne pellet market producing 24.6 MnT in 2017.
Besides, Japan, European and Korean still mills have increased their dependence on Indian mills for pellet demand. Amidst hindrance from LKAB supplies, Indian and other Asian pellet prices are being supported.
• China’s newly announced production cuts: China’s strict governmental laws and approaching winter heating cuts have led to rising demand for high grade ore and has resulted in increased dependence on Indian pellets. As per the proposal for emissions control during the winter heating season in China , cities of Tanjin, Shijiazhuang, Tangshan, Handan, Xingtai and Anyang are expected to cut their blast furnace steel output by 50% whereas at least at least 30% output is expected to be cut in 22 other cities in the region.
Besides, China’s winter production cut is expected to start from 1st Oct’18, i.e before 45 days as against 15th Nov a year before.
• Samarco supplies still remains hampered: The Samarco pellet plant with pellet making capacity of around 30 MnT per year, was suspended post a dam failure occurred in November 2015. The date for resumption of operation at mines was expected to be around late 2018 or by early 2019 with reduced rate of operation at 19 MnT per year.
However, there seems to be a long way to reach to a conclusion for restart at mines owing to pending litigations and compensation packages which eventually may take much time for mine to resume.
How will it impact domestic pellet prices ?
Increasing export realizations in pellets may support the domestic prices as well and prices may not decline sharply.
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