Indian mills return to pig iron export market after 7-month gap

• First export vessel booked after duty withdrawal
  
  
• Resumption of exports positive signal for domestic market
  
  
• Uptick in sponge, scrap prices to keep pig iron prices supported
  
  

Indian mills have resumed pig iron exports after a gap of seven months. SteelMint heard that a consignment of around 50,000 tonnes (t) of pig iron has been booked by a western India-based mill and the cargo is expected to set sail for the US in January 2023. This is the first export vessel to have been booked following the withdrawal of the 15% export tariff on pig iron imposed in late-May this year. No export deals had been heard since July.

"This was very much expected; it was just a matter of time. This shipment is only the beginning and will bring respite to pig iron suppliers in an otherwise oversupplied Indian market. The domestic market is already showing signs of revival after two quarters. With demand expecting to go up in the next six months, this momentum should continue," highlighted a source.

India had increased pig iron exports by over 50% y-o-y to 1.3 million tonnes (mnt) in 2021 from 860,000 t in 2020 by catering to emerging markets such as South Korea and Turkey as well as ratcheting up shipments to traditional buyers such as the US. Higher merchant pig iron production supported higher export volumes last year.

India's merchant pig iron production increased by nearly 35% on the year to 5.59 mnt in 2021 from 4.17 mnt in 2020. Exports had remained dented due to the duty impact since June-July and mills had resumed full-fledged operations in September post maintenance breaks. The resumption of exports, therefore, is expected to bring some respite to the supply glut in the domestic market.

US imports

Manufacturing activities in the US have cooled sharply due to a weak economic environment, strong dollar and the shift of spending from goods to services and pig iron imports have dropped y-o-y in 2022. Pig iron imports increased sharply to over 6 mnt in 2021 due to the post-pandemic economic recovery. However, imports in 2022 (till September) have fallen to around 3.9 mnt.

However, the new infrastructure bill is expected to propel steel demand. The country is experiencing a historic cold snap which has disrupted normal industrial operations and, most likely, scrap generation. It can be expected, therefore, that US mills are stocking up on metallics in apprehension of a possible scrap shortage post the New Year holidays.

With the prevailing embargo on supplies from Russia - the world's leading pig iron exporter - chances are that Indian suppliers stand to gain, especially after the removal of the export duty in November. Brazil has been one of the leading suppliers to the US, however, although high-phosphorous Brazilian pig iron is unsuitable for EAF mills in the US that have a predominantly flat steel production portfolio.

Uptick in prices of substitute products

Domestic pig iron prices had fallen to below INR 40,000/t levels in November this year from over INR 60,000/t in March-April post the outbreak of the Russia-Ukraine war. Subdued domestic demand in the last couple of quarters along with the drying up of exports had piled pressure on prices.

However, prices of substitute products such as melting scrap and sponge iron have witnessed a recovery since late-November as market sentiments were bolstered by the export duty withdrawal. Scrap prices, especially, have seen a brisk recovery in December after prices had come under pressure following the arrival of bulk import vessels in the preceding months.

Sponge prices, too, are on the ascendant due to apprehension of supply tightness in Odisha - a key market. The Odisha State Pollution Control Board has issued a notification mandating closure of all sponge iron plants in Rourkela from 1 January to 31 January with the aim of maintaining air quality during the upcoming Hockey World Cup to be held in the state. Industries and services culpable of coal-based emissions have been mandated to either stop or restrict operations. Rourkela is a key sponge iron market and this announcement naturally led to increased buying due to fears of prices spiralling. As all the DRI units down shutters in January, supply tightness is expected to keep prices strong.

SteelMint assesses domestic steel grade pig iron prices at INR 40,500/t exw Durgapur as on 27 Dec'22 - unchanged w-o-w but up INR 500/t on the month. On the other hand, sponge iron (PDRI) prices have increased by INR 300/t w-o-w to INR 31,950/t exw Raipur, while melting scrap (HMS 80:20) prices have risen by INR 500/t to INR 38,800/t DAP Jalna.

Outlook

Although volumes booked at SAIL's pig iron auctions have fallen sharply in November-December, green shoots of demand are emerging. A recent auction conducted by SAIL-RSP saw prices for steel grade pig iron inching up marginally. With demand recovery on the cards, volumes and prices at SAIL auctions may improve in January. With exports starting after a five-month gap and the anticipation of healthier domestic demand in Q4FY23, it may well be expected that domestic pig iron prices have room for a marginal improvement.