India's iron ore production expected to remain stable at over 246 mnt in CY'22

• Oct-Dec'22 production to rise by over 8% y-o-y
  
  
• Odisha's CY22 output may drop marginally to 135 mnt
  
  
• Karnataka to witness 10% production de-growth
  
  
• NMDC to retain top miner slot, OMC output up by 50%
  
  

India's iron ore production is expected to reach around 246 million tonnes (mnt) in CY22 - largely stable y-o-y - despite a poor third quarter, thanks to steady recovery in production volumes in the October-December period. India recorded 247 mnt iron ore production in CY21.

Production in the January-October period last year had declined by 3% y-o-y. However, output in the last quarter rose to over 64 mnt compared with 59.4 mnt in the year-ago period - an increase of 8.5% y-o-y. This is the key reason for iron ore production in CY22 remaining stable compared with CY21 because volumes had dropped sharply by 13% y-o-y in July-September 2022 to 47.79 mnt from over 55 mnt in the same period of 2021.

Therefore, despite the crippling impact on production and offtake post the imposition of 50% export tariff on iron ore (across grades) and 45% duty on pellets in late-May 2022, healthy recovery in production since October of last year offset any anticipated decline in overall volumes.

Notably, production had picked up since October even before the withdrawal of export tariffs on steel and steelmaking raw materials in mid-November due mainly to higher domestic crude steel production. Crude steel output in January-November 2022 rose by more than 10% y-o-y to over 113 mnt, with the rate of growth supposed to be even higher on-year in Q4CY22.

State-wise output

Odisha remains the highest iron ore-producing state, with production expected to be over 135 mnt in CY22, which is 55% of the country's overall output. SteelMint estimates production in the state to fall by a slender margin of below 2% on-year from over 137 mnt in CY21.

It was initially assumed that production loss from Odisha would be significant post export duty imposition. The prohibitive export duties triggered the threat of a supply glut in the market and producers slashed production in apprehension of a rapid fall in prices. Moreover, the 15% export duty on steel resulted in mills cutting production and taking maintenance breaks ahead of schedule, as the fear of surplus availability of steel in the domestic market proved to be a great dampener for prices. As a direct consequence, raw material offtake suffered.

But Odisha government sources informed that production and dispatches picked up owing to increased output from the iron ore mines bagged by the integrated steel players in auctions. Although production has largely stabilized y-o-y, it deserves mention that mineral auctions in the state in CY22 had to be postponed due to subdued market conditions following the clampdown of export duty.

Production in Karnataka is likely to decline by a sharp 10% y-o-y to 34 mnt in CY22 from over 38 mnt in the previous year. Iron ore production in Karnataka declined in the immediate aftermath of the Supreme Court's verdict lifting curbs on exports and easing sales restrictions. Initially, the verdict gave rise to a deadlock situation as market participants were unsure of the modalities of iron ore evacuation and dispatch. However, the situation has eased since.

Chhattisgarh is likely to emerge as the country's second-largest iron ore producing state, with production inching up by 2% y-o-y to 41 mnt, while Jharkhand will likely witness an even sharper spike in production by over 7% on-year to 25.7 mnt, thanks to the expansion in EC limits of the captive mines of the integrated steel producers in the state.

Leading miners

PSU miner NMDC leads the pack as the top iron ore producer in the country, with output remaining largely stable at over 40 mnt. State PSU miner OMC, however, has raised production by 50% to 30 mnt in CY22 from below 20 mnt in the previous year despite output dropping drastically in the July-September quarter. This is mainly due to new mines coming its way post the Odisha mineral auctions in 2020 as well as capacity expansion of existing leases. Rungta Mines, too, is expected to raise production slightly to over 13 mnt in CY22.

Among steel producers that are also leading iron ore miners, JSW Steel is likely to see a significant drop of 28% in its iron ore production to around 23.5 mnt in CY22 compared with the previous year. This is because the company faced logistical bottlenecks in dispatch of minerals from the state, although problems are easing slowly, SteelMint learnt from sources.

Tata Steel's production, on the other hand, may witness an uptick of around 4% y-o-y to nearly 31 mnt in CY22. Growth prospects are even brighter with the steel major bagging a new block in the 2021 Odisha auctions that is expected to commence operations in 2023. JSPL, too, is expected to clock significant production growth in CY22 to nearly 9 mnt after operationalizing mine blocks it won in the Odisha auctions. SAIL's production will, however, inch down to around 32.7 mnt.

Outlook

As India's iron ore production in CY22 has recovered to reach the CY21 level of 246 mnt, thereby negating the previous forecast of a decline of around 5-10 mnt y-o-y, it may be expected that production in FY23 will be around 245-250 mnt against 252 mnt in FY22, SteelMint assumes.

The Supreme Court has raised the iron ore production ceiling in Karnataka from 35 mnt to 50 mnt from the A and B category mines, which is expected to keep volumes supported. The rollback of export duties on iron ore and pellets is positive for domestic production, although a lot depends on global demand. In addition, expected higher crude steel production y-o-y in Q4FY23 is also a major upside for the domestic iron ore market.

Karnataka roadshow

How is Karnataka's iron ore and pellet industry shaping up post SC verdict? What is the potential in terms of production, demand, exports, and sales? Are you an industry stakeholder keen to find answers to these and several other queries? Book your seat at SteelMint's Road Show-cum-Conference on Karnataka's Mining Sector to be held from 19-21 January, 2023.