Global iron pellet production slated to rise 10% by CY'25

• Production remains stable in CY22 at ~550 mnt
  
  
• Global crude steel output drop impacts pellets consumption
  
  
• Pellets usage to ride decarb goals in future
  
  

Morning Brief: Global iron ore pellets production is likely to rise by 10% to around 600 million tonnes, as per SteelMint's estimates. Data reveals that production remained more or less stable at around 550 mnt in calendar year 2022 (CY22) compared to 552 mnt in CY21. All major geographies have shown a slight drop in production except for China and India.

Globally, the bulk (around 390-400 mnt) of the pellets produced is used in blast furnaces, with China leading in this space. The balance is utilised in manufacturing sponge iron.

Factors that kept production stable y-o-y in CY22

Drop in global crude steel output: Global crude steel production dropped over 4% in CY2022 and by nearly 5% in the fourth quarter. Steel production in China dipped 2% for the full year but rose 2% in Q4, which warranted the slight increase in pellets intake. Thus, pellets production remained stable y-o-y mainly on the strength of the increase in crude steel production in India and for a quarter in China.

Production in the CIS dropped to 55 mnt last calendar from 70 mnt in 2021 because of war-related disruptions. Steel production in Russia was estimated to be down 7% in 2022.

European steelmakers scaled back production in Q3 and Q4, which led to lower demand for pellets. Steel production decreased 22% in Q4 and 10% for the full year compared to 2021.

In step, EU pellet production dropped a notch to 21 mnt from 22 mnt in CY21.

China's pellets usage increases slightly: Covid restrictions in China were relaxed at the end of last year, contributing to an increase in steel production and demand in Q4, which is the likely reason for the modest 10 mnt increase in pellet output last year to 230 mnt.

India's crude steel output rises: The country's pellet production rose to 83 mnt in CY22 from 79 mnt in the preceding year. A key reason was the increase in crude steel output by 5.5% in CY22. That apart, Indian mills are increasingly preferring pellets over sinter because of the environmental benefits of the former. Today, the mix ratio in the blast furnaces has changed with pellets' share rising to 20-25% from earlier 15%, with sinter at 60-65% and iron ore lumps at 15%.

Long-term outlook

China shifting to EAF-Scrap route: For China, dependence on sinter will remain while usage of scrap will increase in the electric furnace segment. The sinter dependence will continue because of its cost viability factor and yet China would be able to take care of its decarbonisation goals since it sources high-grade iron ore from Australia, whose emission quotients are slightly less. Hence, the blast furnace segment will see a slight increase in pellets usage from the current 18-19% to around 22-23% within the next 5 years.

Indian BFs to feed more pellets: But consumption of pellets is increasing in India, essentially because of its green characteristics. Pellets offer better permeability and higher yield compared to sinter. Pellets also lead to lower carbon emissions. Plus, India is set to increase its steel production to feed its growing infra needs, being a developing country. Thus, need for pellets will increase correspondingly. As per SteelMint's forecast, India's pellet production will rise around 26 mnt to touch around 110 mnt by CY25.

Brazil miners ramping up pellet production: Samarco, a major Brazilian miner, is eying pellet capacity increase too. It has been gradually ramping up production after recouping from the 2015 dam collapse.

Although the capacity is 30 mnt, Samarco was operating at a far lower utilisation rate. The current production is 4 mnt but is expected to rise 50% to 15 mnt by 2025-2026 as per the company's guidance.

Vale too has given guidance of a target of about 50-55 mnt by 2026 from the current 36-40 mnt (produced across Brazil and Oman facilities).

Iran's capacity expected to increase: Iran's pellet capacity is likely to increase at least another 10 mnt from 67 mnt in 2022 to around 79 mnt in 2025.

These factors will support SteelMint's estimated increase in pellets output to 600 mnt by 2025.

SteelMint organising 6th Indian Iron Ore & Pellet Summit in Kolkata in Aug

How will the global pellet usage pattern change in the not-too-distant future, especially since decarbonisation goals will have to be met? What are the upcoming pellet capacities in India? What will be the export potential of pellets from India, going forward? These and a lot more will be discussed at SteelMint's upcoming international joint conference on iron ore & pellet, sponge iron and coal. Over 20 speakers and 500-plus participants will gather to deliberate on key topics of the day. The conference will be held at the JW Marriott, Kolkata, over 24-26 August, 2023. Register fast.