India’s iron ore output falls nearly 20% in July on export duty impact

• Odisha production drops 22% on month in July
• January-July output edges down marginally y-o-y to 150 mnt
• Possible production loss in 2022 may be around 20 mnt

India’s iron ore production dropped around 18% m-o-m to a little under 16 million tonnes (mnt) in July 2022 from over 19 mnt in June, as per latest SteelMint data. Production fell on weak demand and offtake since the imposition of export duty on finished steel and steelmaking raw materials and intermediaries in May in a bid to control runaway inflation.

On the other hand, production fell marginally by around 1.5% to over 150 mnt in January-July this year compared to the same period last year. However, production in Odisha in the first seven months of the year fell around 5.5% to 84 mnt compared with nearly 90 mnt in January-July of last year.

While Chhattisgarh recorded production at 25 mnt in the first seven months of the year, Karnataka and Jharkhand produced roughly 20 mnt and 15 mnt, respectively, during the period.

It is noteworthy that production in Odisha, India’s leading iron ore producing state, sunk to around 8.7 mnt in July compared to over 11 mnt in June, a decrease of over 22% on the month. Similarly, production in Chhattisgarh also declined by 27% to a little over 2 mnt in July from close to 3 mnt in the preceding month.

However, production in Karnataka and Jharkhand remained stable m-o-m at 2.2 mnt and 1.8 mnt, respectively.

Factors affecting production

• The hike in iron ore export tariff brought down the possibility of mineral dispatches. The prohibitive 45% duty on pellets and 50% tariff on iron ore of all grades triggered the threat of a supply glut in the market and producers slashed production in apprehension of a rapid fall in prices. This was especially true of pellet producers who drew back from lifting iron ore bought at auctions prior to the clampdown of duty.
• SteelMint data shows that closing (pithead) stocks of iron ore in Odisha increased sharply by over 17% m-o-m in May to above 62 mnt from around 53 mnt in April. Mine head stocks rose further to 66 mnt in June before falling to roughly 64 mnt in July. The rise in closing stocks clearly reflects the slow pace of iron ore drawdown by the mills on weak market sentiments.
• Additionally, the 15% export duty on steel resulted in mills cutting production and taking maintenance breaks ahead of schedule, as the fear of surplus availability of steel in the domestic market proved to be a great dampener for prices. As a direct consequence, raw material offtake suffered.

Outlook

Factoring in the monsoon impact coupled with still-weak demand and prices as reflected in auctions in August, it is expected that iron ore production during the month will remain lower-than-average.

“If the 50% export duty on all grades of iron ore remains in place, it is safe to assume that production from Odisha, which was around 145 mnt last fiscal, may drop to around 120-125 mnt in FY’23. The possible loss of iron ore production from Odisha may be around 20 mnt,” a senior Odisha government official told SteelMint.

India’s iron ore production in 2021 was around 246 mnt. SteelMint had estimated that capacity enhancement of both the PSU merchant miners as well as captive producers might drive production higher to 255-265 mnt in 2022. However, the current scenario may well warrant a downward revision from that estimate to the tune of around 20 mnt.