Indian iron ore and pellet exports likely to drop in Q2CY23. China factor to watch out for

• Volumes already show a drop in April
  
  
• Decline in global demand, prices plays role
  
  
• China's production cuts may pressure India's volumes
  
  

Morning Brief: India's iron ore and pellet exports, which had increased to 11.6 million tonnes in the first quarter (January-March) of calendar year 2023 (Q1CY23), are likely to see a decline in Q2, as per SteelMint's estimates.

April is already a pointer towards this trend. Volumes showed a drop in April, reveals SteelMint data. Iron ore exports fell 10% m-o-m in April, while pellet exports dropped a steeper 23%.

It may be recalled, iron ore and pellet exports had increased to 11.6 mnt in Q1CY23 post-rollback (last November), of the export duty slapped in May 2022.

March shipments hit record high

Meanwhile, India's exports of iron ore and pellets rose to a two-year high of 4.36 mnt in March 2023, an increase of 15% m-o-m against 3.8 mnt in February. Exports increased sharply by nearly 60% y-o-y compared to 2.75 mnt in March 2022. In fact, export shipments climbed to the highest level since over-5 mnt recorded in May 2021, SteelMint data shows.

The surge happened on the back of the increase in Chinese demand for raw materials in Q1 as well as the scramble for low-grade ore in a bid to cut costs amid the fall in steel prices. That apart, India had more volumes to offer via exports with an increase in production.

Country-wise iron ore and pellet exports in Apr

Iron ore: China was the highest and main importer of India's iron ore in April, 2023 with 2.96 mnt. However, this was a 10% m-o-m drop against 3.29 mnt in March.

Pellets: China was the key and largest pellets importer with 0.69 mnt but which was a m-o-m drop of 23% against 0.92 mnt in March.

Top exporters in April

Iron ore: Rungta Mines was the largest exporter of iron ore in April, 2023 with 0.50 mnt, a decrease of 25% compared to 0.67 mnt in March. Praful Enterprise followed with a 50% m-o-m decline at 0.32 mnt (0.65 mnt in March). Vedanta was third but it saw a 232% increase to 0.56 mnt against 0.17 mnt in the previous month.

Pellets: Prominerals led the pellets exports chart at 0.18 mnt in Apr'23. KIOCL followed with a m-o-m 57% plunge to 0.17 mnt (0.38 mnt). Rungta ranked third with a 32% decline to 0.16 mnt (0.23 mnt).

Why are volumes expected to drop in Q2?

Drop in global iron ore prices: The decline in global steel prices and consequent drop iron ore prices as well as futures led to India's low-grade export offers falling to a five-month low in late April.

The approaching Labour Day holidays were one of the key factors that led to low trade volumes, especially in China and Southeast Asia. As a result, global ore prices, in late April, decreased sharply to their lowest level so far in CY23.

Resultantly, SteelMint's low-grade iron ore export index fell to a 5-month low.

Pellet export realisations drop vs domestic: Towards end-April, domestic pellet (Fe63%) prices stood at INR 8,700/t loaded on to wagons for Barbil, eastern India. On the other hand, SteelMint's pellet exports' ex-plant price realization for the Barbil region dropped to INR 6,200/t, making exports unviable. Pellet exports realisations fell because of the decline in global steel demand and prices.

Fall in Chinese demand: Several factors are pulling down demand in China. The Labour Day holidays and slow recovery in the real estate sector despite government support are leading to tepid demand recovery. Subdued demand is necessitating production cuts. Moreover, NDRC has been cracking down on hikes in the prices of high-grade iron ore. All these factors are putting margins of mills under pressure, leading to lesser demand for both iron ore and pellets.

In fact, as per reports, Chinese policymakers are even discussing a 2.5% y-o-y reduction in crude steel output in 2023, although it is deemed too high in view of China's 5% growth target this year.

Way ahead

Since China is a huge influencer of India's, nay, the world's, iron ore and pellets exports story, which way the demand recovery wind blows in this country will be watched keenly.

The short to medium term looks a trifle weak with regard to India's exports of iron ore and pellets since China has officially released a production cut document in some regions. This could signal a drop in demand for raw materials.