India's iron ore, pellet exports rise to 20-month high in Feb'23

• Exports in Feb'23 up nearly 80% y-o-y
  
  
• Duty withdrawal, higher domestic production drive exports
  
  
• Shipments may not rise sharply due to uncertain China outlook
  
  

Exports of iron ore and pellets from India climbed to a 20-month high of over 3.8 million tonnes (mnt) in February 2023, as per SteelMint data. Export sales increased by over 10% m-o-m compared with 3.4 mnt in January. Shipments inched up sharply by nearly 80% y-o-y from 2.13 mnt in January 2022. While iron ore exports were assessed at around 2.8 mnt during the month under review, pellet shipments were recorded at over 900,000 t.

SteelMint data show that exports of the key steel-making raw materials stood at around 16 mnt in 2022 - plunging nearly 60% y-o-y from over 37 mnt in 2021. Exports started surging mainly after the withdrawal of tariffs on iron ore and pellets in late-November last year as well as buoyant demand from China following the reopening of the economy after lifting of COVID-19 restrictions.

China remained the leading importer of Indian iron ore and pellets in February at over 3.5 mnt, or roughly 92% of total exports by India. At over 12 mnt, China's share in India's iron ore and pellet exports in 2022 stood at 77%. Malaysia, Indonesia, Vietnam, Germany and the UAE were among the other importers.

AM/NS India, Rungta Mines, Vedanta, etc. were the top exporters during the month as well as in 2022 as a whole. While Paradeep Port handled the highest cargo volumes in February, the other major ports were Gopalpur, Krishnapatnam, Dhamra, Vizag, etc.

Why are exports rising?

• Increase in iron ore, pellet production: India's iron ore production climbed to a 9-month high of 24.5 mnt in December and remained firm at over 24 mnt in January, as per provisional data. Production volumes have increased markedly since October. Similarly, pellet production rose to a 10-month high of over 7.2 mnt in January - higher than 7 mnt in December. Production increased significantly from 6-6.5 mnt/month from June-November. Therefore, higher domestic raw material production, besides catering to increasing domestic crude steel production, ensured greater availability of volumes for exports. On the other hand, positive export market sentiments propelled domestic production. The marked recovery in merchant output of iron ore and pellets facilitated higher exports.
  
  
• Export duty withdrawal: Export shipments had fallen to zero in September as a direct fallout of the 50% duty imposed on iron ore (across grades) and 45% on pellets in May, but recovered rapidly since December. The withdrawal of the export tariffs led to a steady rise in production and exports of iron ore and pellets.
  
  
• China demand: China's crude steel production in January stood at 79.5 mnt, an increase of over 2% y-o-y, as per WSA data. The lifting of pandemic curbs and the release of pent-up demand in China are positive indicators for steel production. The manufacturing Purchasing Manager's Index (PMI) reached over 50 in January. Plus the government's push to support the real estate sector is conducive to steel demand. The recovery in Chinese demand has directly benefitted Indian exporters.
  
  
• Low-grade iron ore in favour amid global price rally: China's reopening has been a key driver of global raw material prices and benchmark Fe62% Australian iron ore fines prices had recently touched $130/t CFR China. However, spreads for steel mills have narrowed at the same time and so low-grade iron ore, typically Indian ore (Fe57% or below) is the preferred choice for steelmakers mainly for blending and reducing costs.
  
  

Outlook

The loosening of COVID restrictions has triggered economic and industrial activity as well as concerns about pollution levels in China. The current restrictions on sintering operations in the steel-making hub of Tangshan indicate that environmental restrictions may be imposed from time to time. In such a situation, steel-makers would prefer to use lump ore due to its cost-effectiveness. So, pellet exports from India may not rise significantly amid firm domestic demand ahead of the financial year-end as well as China's preference for low-grade ore. Current SteelHome data also shows a slight increase in port inventories of pellets in China.

However, fiscal support for infrastructure and real estate is largely positive for iron ore demand. The market is waiting for the National People's Congress, 'Two Sessions', to be held in end-March for likely announcement of fresh policy support for infrastructure.