India's sponge iron exports witnessing steady growth. What does the future hold?

• Sponge iron exports rise 15% y-o-y in FY'24
  
  
• Exports remain stable y-o-y at 0.7 mnt in H1FY'25
  
  
• Imports by Nepal rise exponentially
  
  

Morning Brief: India, the largest sponge iron (DRI) exporter in the world, shipped 1.30 mnt of DRI in FY'24, a rise by 15% in comparison to 1.13 mnt in FY'23. Exports remained stable y-o-y at 0.7 mnt in H1FY'25 as against 0.69 mnt in the year-ago period. Nepal was the key buyer of Indian DRI with a contribution of over 80%, followed by Bangladesh, while the rest was exported to Bhutan, Malaysia, etc.

Out of total sponge iron exports, about 70% took place from Odisha, while the remaining was from West Bengal.

India's crude steel production has experienced significant growth, currently standing at approximately 144 mnt. It is estimated that crude steel production could touch around 152 mnt by FY'25.

This growth has directly impacted the demand for sponge iron as a raw material, especially since the electric route segment, whose key raw material is sponge iron (along with scrap) holds sway.

DRI has gained prominence as an alternative to melting scrap in India's induction and electric arc furnaces. Currently, DRI has about a 30% share in India's total crude steelmaking. India's DRI industry is set to grow at 6% CAGR by 2030, with the projected annual forecasted DRI production in the range of 65 to 70 mnt by FY'30. Production stood at around 52 mnt in FY'24 and is expected to reach 54 mnt in FY'24.

Factors supporting exports:

1. Growing domestic production: As crude steel production rises, the growth of sponge iron is expected to follow suit. India, with its abundant iron ore reserves, anticipates a significant increase in iron ore production, projected to reach 400 mnt by FY'30, up from 278 mnt in FY'24. This represents an over 40% increase driven by higher demand and industry expansion. Consequently, DRI production is also set to rise. Currently, DRI accounts for about 30% of India's total crude steelmaking, with an annual capacity of approximately 63.34 mnt in FY'24 and production of around 52 mnt. This boost in domestic sponge iron production will lead to a greater surplus available for exports.
   
   
2. Increased imports by Nepal: A significant factor is the increase in imports by neighbouring Nepal. Data indicates that import volumes grew from 0.61 mnt in FY'23 to 0.85 mnt in FY'24. This rise in DRI consumption in Nepal is due to the country's mills expanding their melting capacities. Consequently, these mills are opting to produce billets from sponge iron rather than importing billets.
   
   
3. Imports by Bangladesh stable: Imports of sponge iron by this South Asian country has been more or less stable. It imported 0.38 mnt of sponge iron in FY'23 and volumes remained stable in FY'24 as well. The country needs to import sponge iron to feed its rising steel capacities.
   
   
4. Nepal's flexibility in using pellet/lump-based DRI: It may be mentioned that a technical factor is also supporting Nepal's increasing imports of Indian sponge iron. Bangladesh does not import pellet-based sponge iron, preferring only iron ore lump-based material. Nepal, on the other hand, being land-locked and totally dependent on imports, buys both pellets- and lump-based material. Meanwhile, around 65% of India's sponge iron is pellet-based which gives Nepal an added and cost-effective edge. Unlike port-based Bangladesh, for Nepal, importing scrap is an expensive proposition since that material will have to first land at a nearby port, say India, and then get transported to its shores. In Bangladesh, on the other hand, more than 80% of its raw material requirement is being met through imported scrap, it being a coastal country.
   
   

Outlook

Sponge iron exports from India are expected to continue increasing, sustained by the growing demand from both Nepal and Bangladesh. India's exports are projected to reach 3 mnt by FY'30.