Indian Iron Ore Demand and Supply Dynamics; How Things May Turn Out in 2020?

Indian government has recently allowed Steel Authority of India Ltd (SAIL) to sell 25% of its annual iron ore production from its captive mines in order to offset the risk of possible disruption that may take place post mining auction due in March 2020.

Government has also allowed to dispose 70 MnT of SAIL's low grade minerals (iron ore and lime stone) from its captive mines in order to make sure steel sector has sufficient supplies of iron ore in future.

Let us understand the dynamics of Indian iron ore and how will this decision help mitigate the risk of possible disruption.

Indian Demand

Indian current iron ore demand is around 190 MnT. Out of this, 50 MnT is captive and 140 MnT is merchant (which includes domestic and imports). Odisha has the maximum share of merchant mining which is around 80 MnT and out of this, 55 MnT production is coming for auction. There is a risk, if transition takes time, then there is a possibility of disruption.

What could be the deficit?

Total deficit could be around 55-60 MnT across India, of which maximum will come from Odisha.

What could be the additional supplies?

1. Public sector merchant mines have projected to increase their production by 3-5 MnT in 2020, although their guidance are much higher.

2. Odisha's iron ore production is ~100 MnT against an EC limit of 140-145 MnT. 50-55 MnT Iron ore production which is coming for auction has an EC limit of 80 MnT. We expect additional 4-5 million tonnes may be added by private miners which has additional EC and are allowed to operate beyond March 2020.

3. Odisha govt has allowed steel plants in Odisha to stock iron ore outside their premises for a period of 2 yrs. We expect a stocking of around 7-8 MnT may happen before mining auction by pellet plants and steel mills like JSW, Tata, Vedanat, Bhushan, JSPL.

4. Indian govt allows SAIL to sell 25% of its annual production in merchant market. This would add upto 7-8 MnT annually. Challenge would be create infrastructure to transport ore from their mines to buyers plant.

5. Auctioned mines to resume production: Several mines which had been auction in Karnataka are likely to start production soon, this would add upto 5 MnT iron ore of which 2.5 MnT will be usable ore

6. Govt also allows SAIL to dispose low grade inventories of iron ore, which stands at 40 MnT as per their annual report. But assuming it is low grade ore and needs beneficiation, there is limited scope that it can be used effectively and can add a significant number

7. Jidnal steel holds inventories of 10-12 MnT which is waiting court's approval. But there is uncertainty on time and can not be factored

8. Exports of iron ore and pellets will come down and can add around 5-6 MnT supplies in domestic market

To sum up, against a possible short fall of 55-60 MnT iron ore, additional supplies that are expected to come in the system could be 30-35 MnT on an annual basis. Still India may see a short fall of 25-30 MnT annually, if transition takes longer than expected.

Qty in MnT
Source: SteelMint Stats