India's iron ore exports fall to a one-and-a-half-year low in Aug'24. Know why?

• Export shipments fall to lowest level since Dec'22
  
  
• Chinese steel output cuts amid weak margins weigh on market
  
  
• Outlook bleak on soft China demand, decline in global ore prices
  
  

Morning Brief: India's exports of iron ore, excluding pellets, sunk to the lowest level in over one-and-a-half years in August 2024 to around 1.34 million tonnes (mnt), as per data available with BigMint. Such lows were last seen back in December 2022 when exports of iron ore were affected due to the imposition of a steep 50% duty on iron ore, which was revoked in November 2022.

Exports declined 35% y-o-y in August, with all the major suppliers recording sharp decreases in shipments. The top exporter, Rungta Mines, recorded a sharp 22% m-o-m reduction in volumes to around 0.62 mnt in August from 0.79 mnt in July.

JSW Steel's export volumes have decreased by around 80% since June. The company has disclosed its plans to surrender the 12.8 mnt/year Jajang iron ore mine in Odisha, won at the 2020 Odisha auctions at a premium of 110%, owing to reasons of unviability.

On the other hand, no exports were recorded from Karnataka, with BigMint data showing nil shipments from Krishnapatnam Port in August as against 0.11 mnt in July. Monsoons have impacted availability, limiting exports.

Why iron ore exports plummeted?

• China scales down imports: India's iron ore exports to China, which usually accounts for over 90% of total shipments, nearly halved in August to around 0.85 mnt from 1.62 mnt in July. Data shows that exports to China have fallen by nearly 70% since June on declining steel production in China especially due to the real estate slump and continuous decline in new home starts. Consultancy firm Mysteel's data reveals that China's hot metal production in August declined over 5% m-o-m and 8% y-o-y to 2.26 mnt/d due to extensive maintenance stoppages at BF-based mills, with as many as 43 BFs taken offline during the month while only 15 were brought back online.
  
  

This was due to the fact that steel mills are suffering severe losses due to weakening prices.Production also suffered as most mills cleared their yards of old-standard rebar stocks by lowering prices before the new standards take effect from 25 September. So, mills still remain deeply in the red, lacking the motivation to increase production.

• Global iron ore prices weaken: Production cuts and soft steel demand in China have pushed global iron ore prices lower making it difficult for traditionally high-cost Indian suppliers to sustain their profits. The benchmark Fe62% fines index has edged down to $99/t CFR China in August from $106/t in July - the lowest since November 2022. BigMint's benchmark Fe57% fines export index has declined to $56/t FOB eastern India in August and is currently languishing at the lowest level since November-December 2022.
  
  

• Higher domestic utilisation: Domestic high-grade iron is at a premium and tightening availability, especially in eastern India, due to mining and transportation problems during the monsoon months has pushed pellet manufacturers to scale up the usage of low-grade domestic ore, largely earmarked for the export market, by beneficiating such ore and blending with other grades for pellet production.
  
  

Outlook

Chinese steel mills are expected to increase crude steel and hot metal production in September during the peak autumn season for steel demand but inventory overhang, stocks of old rebar left to be liquidated, steady decline in steel prices, iron ore port inventories of over 150 mnt, and a weak new export orders index will all weigh on steel production and demand in September.

On the other hand, global iron ore prices are approaching the $90/t level making it difficult for most Indian traders to compete owing to thin margins, with just a few major companies remaining active in the export market, as per BigMint assessment. Therefore, the outlook on iron ore exports in September remains bleak.