India's manganese ore imports in decline mode; what to expect in short term?

• Subdued domestic steel demand, lower exports hit ore imports
  
  
• Global ferro alloy producers feel inventory pressure, cut output
  
  
• Hiked power tariffs impact South African miners
  
  

Morning Brief: India's manganese ore imports have been showing a declining trend for quite some time now. Data maintained with SteelMint reveals that volumes fell a sharp 32% to 1.51 million tonnes (mnt) over January-April, 2023 compared to 2.23 mnt seen in the same four months in 2022.

M-o-m too, imports in April 2023 showed a 15% drop to 0.39 mnt against 0.46 mnt recorded in March. April imports, on a y-o-y basis, were down 33% pitted against 0.58 mnt in April 2022.

It may be recalled that imports of this ore fell 27% in financial year 2022-23 (FY23) to 4.63 mnt compared to 6.33 mnt in FY22.

Data also reveals that on a y-o-y basis, imports from the major sourcing countries like South Africa, Gabon and Australia were down 23%, 44% and 56% respectively over January-April, 2023.

Well over 96% of manganese ore is used in the steel and ferro alloys industries for strengthening of the metal and removing impurities with the balance minuscule portion finding application in the battery and fertilizer sectors.

What factors are pulling down manganese ore imports?

Subdued domestic demand for steel: India's steel consumption showed a 15% increase over the first four months of the calendar but dropped 15% in April to 10 mnt against 11.70 mnt in March, reflecting the tepid offtake scenario.

The market was characterized by a liquidity crunch, low demand for construction steel while flats faced competition from cheaper imports.

As a result, India's crude steel production rose a nominal 3% over January-April, 2023 and fell 6% m-o-m in April as per data maintained with SteelMint, warranting lesser use of manganese alloys by mills.

Steel exports show a decline: India's steel exports dropped 28% over January-April, 2023 to 3.59 mnt against 4.98 mnt seen in the same period in 2022. That apart, on a m-o-m basis, exports were down 9% in April. Festive holidays, subdued demand, sufficient inventory in the EU and lower Chinese offers for Vietnam kept overseas demand on a leash last month, translating into lower production pull for crude steel and thus lesser need for manganese alloys.

Volumes from South Africa drop: Exports from South Africa to India, which comprise a leading share in the total volumes, dropped 31% m-o-m in April and 23% y-o-y in January-April, 2023. Factors like soaring power tariffs impacted production. National utility Eskom took an 18.65% hike, effective April, for standard customers and 18.49%, effective July, for municipal customers. These hikes are still far below Eskom's expected 32% as it battles debt and increasing cost of power generation.

The raised tariff increased miners' cost of production, leading to output cuts amid slack offtake trends.

Gabon exports down: Exports from this country comprise the superior 44% Mn ore, which is primarily used in the manufacture of the higher grades of silico manganese of 65-16 and above. However, Indian silico manganese manufacturers have stopped production of the 65-16 and 65-17 grades in the face of diminished global steel demand and shrunk export enquiries, which has led to a drop in procurement of the ore from Gabon and even Australia. Imports from Gabon are down 21% m-o-m in April and 44% y-o-y over January-April, 2023.

Manganese alloys inventory pile-up: Globally, demand for finished steel is rather subdued because of a persisting inflation. As a result, worldsteel data shows that crude steel production, after a protracted downturn, still hovered in negative territory, over January-March, 2023, showing a 0.1% dip, which has also hit demand for manganese ore and the downstream alloys. As a result, most ferro alloy producers are staring at inventory build-up and have cut back production, as per some sources. For instance, China's ferro alloys production dipped 6% y-o-y to 2.84 mnt in April, as per the National Bureau of Statistics data, amid crude steel oversupply but slack demand.

Outlook

A supply-demand imbalance in manganese ore is resulting in weakening prices and poor futures performances. With the global steel market subdued, and ferro alloy inventory exerting pressure, the manganese ore market is expected to continue to perform poorly in the near future.