India's iron ore production may drop 7-8 mnt y-o-y in CY22

• Odisha output falls 7 mnt y-o-y in 10MCY22
  
  
• October iron ore production rises nearly 15% m-o-m
  
  
• Outlook positive post export duty rollback
  
  
• Production likely to drop 7-8 mnt in CY'22
  
  

India's iron ore production in the first 10 months of CY22 (January-October) fell by 2.5% y-o-y to around 201 million tonnes (mnt) from over 206 mnt in the same period of last year, as per data maintained with SteelMint.

The marginal drop in production was largely due to the sharp downtrend in output from June through to September following the imposition of export tariffs on finished steel and steelmaking raw materials towards the end of May this year. It should be noted that June production fell around 15% on the month to 19 mnt from 22.6 mnt in May, while July output fell even more sharply by nearly 18% m-o-m to 15.74 mnt.

However, even before the tariffs were lifted in mid-November, production had started to inch up on higher y-o-y domestic crude steel output post monsoons. It is noteworthy that October iron ore output increased by nearly 15% m-o-m to 18.6 mnt from 16.2 mnt in September.

State-wise production

Odisha retained the top spot among iron ore producing states in the country in the first 10 months of 2022 (10MCY22) posting total production at nearly 110 mnt - over 54% of the country's total production. Although iron ore output fell by around 7 mnt compared with the same period last year, October production rose by 27% on the month to around 9.6 mnt from 7.5 mnt in September.

It was initially assumed that production loss from Odisha would be significant. But state 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. Therefore, the possibility of a sharp drop in Odisha production this year has narrowed considerably, SteelMint notes.

The other leading iron ore producing states recorded more or less stable production figures. While Chhattisgarh's output increased marginally to over 33.6 mnt in 10MCY22 from 33.2 mnt in the year-ago period, Karnataka's production declined by around 12% y-o-y to 28 mnt from nearly 32 mnt. However, Jharkhand recorded a marginal increase in output at 20.7 mnt versus 19.2 mnt in the corresponding period last year.

Factors impacting production

Therefore, the key reason for the slight y-o-y decrease in 10MCY22 iron ore production was largely lower output from Odisha and, to a lesser extent, Karnataka.

The hike in iron ore export tariff (across grades) brought down the possibility of mineral dispatches. The prohibitive 45% duty on pellets and 50% tariff on iron ore of all grades 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.

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 since eased. The SC has raised the iron ore production ceiling in the state from 35 mnt to 50 mnt from the A and B category mines.

Leading miners

Among the top iron ore producers in the country, PSU merchant miner NMDC tops the list with production at over 33 mnt - consistent as against January-October 2021. On the other hand, state-owned miner OMC raised output significantly by 50% y-o-y to over 24 mnt from 16.2 mnt in 10MCY21 despite output dropping drastically in the July-September quarter this year. 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.

Integrated steel producer SAIL recorded output at 27 mnt - a marginal decrease from over 28 mnt in the year-ago period, while Tata Steel's output was by and large stable at the 16-mnt level. However, JSW Steel saw its iron ore production from Odisha dropping around 55% y-o-y to about 15 mnt from over 23 mnt in the same period last year.

Outlook

India's iron ore production in CY22 stood at over 246 mnt, as per SteelMint data. Now that the export duties on steel, pellets and iron ore (except low-grade) have been rolled back, production is expected to edge up in the remainder of the year.

October 2022 production was just 3% lower y-o-y. Assuming that pan-India monthly iron ore production remains at the average level of 19-20 mnt in the last two months of CY22, total yearly production should not fall more than 7-8 mnt compared with 2021. Therefore, it may be expected that iron ore production in 2022 should be around 238-240 mnt.

Karnataka Road Show

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 on 19-23 January, 2023.