India: Pellet producers turn to other export destinations as China demand wanes

SteelMint's pellet export index (Fe 64%, 3% Al, FoB east coast) recorded a drop of $27/t w-o-w and currently stands at $156/t. The index has fallen to a nearly eight-month low, as per SteelMint data. In the absence of firm bids from China and drop in global iron ore prices, Indian pellet exports to China have dried up.

Market sources shared that demand from China continues to remain dull for Indian-origin pellets as China's steel market is coming to terms with the government-mandated steel production controls which is reining in demand for raw materials.

Instead of showing interest for high-Fe and low-alumina cargoes, Chinese mills are preferring to use more cost-effective cargoes for the momenet; for example, cargoes with a large discount against the benchmark Fe 62% index but with comparatively satisfactory specifications.

Steel mills in north China's Hebei province are bracing up for intensified curbs on local steel production the winter of 2021-2022. The steelmaking hub of Hebei Province, Tangshan, has issued the Implementation plan for air quality assurance for the 2022 Beijing Winter Olympics and Winter Paralympic Games, requiring the city to reduce crude steel output by 12.37 mn t ahead of the events scheduled for Feb and Mar'22.

Recent deals concluded for destinations other than China - The Indian pellet exports market has remained dull since the past month which has forced suppliers to turn to markets other than China such as Europe and the Middle East.

• An Odisha-based pellet producer was heard to have concluded an export deal for Fe 63% (Al 3.7%) pellet to Europe at $223-225 on CFR basis for early Sept'21 shipment.
  
  
• South India-based pellet producer KIOCL issued an export tender for sale of 55,000 t of Fe 63% pellet with alumina content of 2% last week. The tender was heard concluded at around $195/t FoB. The minimum quantity offered was 55,000 t and the booking was done by a buyer from the Middle East.
  
  
• KIOCL has issued an export tender for similar grade material today, as per SteelMint reports. The tender, due on 12 Aug'21, is solely for KIOCL's empanelled customers. The minimum quantity offered is 55,000 t.
  
  

"We are not looking for exports at current levels as the domestic market has picked up," said a pellet producer from eastern India.

Indian pellet export shipments were recorded at 13.85 mn t in FY'21, as per data maintained with SteelMint. China was the largest importer of Indian pellets in FY'21 at 11.04 mn t, up 7% as against 10.35 mn t in FY'20. Exports to other nations increased by 21% to 2.81 mn t in FY'21 as against 2.33 mn t in FY'20.

Rationale:

• A few deals heard were not taken into consideration as they were for non-Chinese destinations and did not come under the purview of SteelMint's methodology. Hence, the weightage given was 0%.
  
  
• Six (06) indicative offers and bids were received, out of which four were considered for calculation of the index and given a weightage of 100%.
  
  

Market highlights

• Spot iron ore prices fall sharply w-o-w: The spot price of iron ore (benchmark Fe 62% fines) dropped sharply w-o-w by around $22/t to $162.20/t CFR China on 10 Aug'21. Prices fell by $9/t d-o-d. Iron ore futures on the Dalian Commodity Exchange (DCE) picked up 2% on 11 Aug'21. DCE iron ore futures' Jan'22 contract closed at RMB 871.5/t ($134) (-RMB 18.5)
  
  
• Pellet inventory slightly down w-o-w: Total pellet inventory at China's major ports was recorded at 3.8 mn t as against 3.9 mn t last week.
  
  
  
• Domestic pellet prices inch down: SteelMint's bi-weekly domestic pellet (Fe 63%) index, PELLEX, fell marginally by INR 50/t to INR 14,500/t DAP Raipur on 10 Aug'21. Current offers from Raipur-based pellet producers are at INR 14,200-14,500/t exw, SteelMint learnt from sources.