India's iron ore consumption up 7% in Jan-Aug'24; what lies ahead?

• Increased crude steel production supports iron ore
  
  
• Sponge iron units increase iron ore usage in feed
  
  
• Competitive domestic scrap limits iron ore demand
  
  

Morning Brief: India's iron ore consumption rose a modest 7% to around 161 million tonnes (mnt) over January-August, 2024, compared to 150 mnt seen in the same eight months in 2023, reveals BigMint data.

Factors that influenced this modest increase

• Moderate rise in crude steel production: India's crude steel production rose a moderate 8% in this period under review to around 98 mnt from 91 mnt seen over the same months last year. Hot metal output rose an additional 2 mnt to 59 mnt (57 mnt), amid increased production at JSPL Angul and NMDC Nagarnar plant. This supported iron ore consumption.
  
  
• Sponge iron units increase iron ore usage in feed: India's sponge iron production saw an addition of 3 mnt to 35 mnt during January-August 2024 against 32 mnt seen in the same period in 2023. The reasons were two-fold. One was the increase in sponge capacity additions in central and eastern India. The consumption of sponge iron rose by around 4 mnt to 35 mnt (31 mnt) in this period, the increase in crude steel production through the induction furnace route rose in these eight months. Data reveals that, in January-August, 2024, the share of crude steel production via the basic oxygen furnace route dipped to 42% against 45% in the same period last year. Concomitantly, the share of IF-based production rose to 36% from 33% in this period. Following this, iron ore consumption in India's DRI sector increased, fuelling the overall increase in iron ore consumption.
  
  
• EAF steel mills increase sponge usage on cost viability: It may be noted, sponge iron is a key raw material that competes with scrap at electric furnaces. These mills increased sponge iron feed because of the cost-effectiveness compared to scrap. Prices of PDRI, ex-Raipur fell over 9% y-o-y in these eight months to average INR 26,856/t ($321/t) from INR 29,678/t ($355/t).
  
  
• Higher sponge consumption and lower scrap imports limit scrap demand: Scrap is another competing raw material for sponge iron. India's ferrous scrap imports declined this year so far amid competitive domestic prices. For instance, domestic scrap, HMS 80:20 DAP Mumbai, on average fell 9% y-o-y to around INR 33,900/t ($405/t) in January-August 2024 against INR 37,300/t ($446/t) recorded in January-August, 2023. As a result, imported scrap volumes dropped 18% to 5.6 mnt in January-August 2024 against 6.81 mnt recorded in CPLY. This also encouraged mills to use more of sponge iron rather than scrap. This trend kept iron ore consumption growth somewhat muted while overall scrap consumption fell to 20 mnt in this period from 21 mnt seen in CPLY.
  
  

Outlook

"India's iron ore consumption is expected to increase in September-December, 2024 as crude steel production will also rise. Especially since production cuts were seen earlier this fiscal," observed a source.

The country's crude steel production in 2024 is estimated at 152 mnt, which would entail addition of another 78 mnt in the second half of the year (H2CY'24). Iron ore consumption is expected to increase another 133 mnt in H2 to 254 mnt this calendar. The peak demand season is set to unfold from the October-December quarter, which would augur well for both crude steel and iron ore and support these forecasts.