India's pellet production falls by 12% in May amid squeezed margins, maintenance shutdowns

India's pellet production stand at 6.6 million tonnes (mnt) in the month of May, 2023, a fall of 12% y-o-y is recorded against 7.5 mnt in the same month last year, SteelMint noted.

On the other hand, domestic pellet production witnessed a drop of 4% m-o-m, as 6.9 mnt is produced in April against 6.6 mnt in May, due to thin margins amidst fall in pellet prices. Lower export volumes and high production costs are worrying the Indian players.

Indian pellet producers were seen curtailing production or had preponed their annual maintenance plans to May, as per information available to SteelMint. This scenario will likely have an impact on production volumes.

During January-May, 2023, production stood at 36 mnt as compared to 35.5 mnt in the same period last year, as per data compiled with SteelMint.

Reasons behind drop in production in May'23:

• High cost of production amid low realisation: The high cost of production and lower pellet sale prices obviously had an impact on the margins of the producers. Just to give a comparison, India's iron ore Fe 62% fines index remained relatively stable in March-May, 2023 at around INR 5,700/t. On the other hand, pellet prices have been falling in the domestic market amid low demand for finished items. SteelMint's pellet index, PELLEX, was trading at a 5-month low towards the beginning of May. It has dropped from over INR 9,300/t a month ago to around INR 8,750 at present. In fact, prices have been steadily falling from the 10, 000 levels seen 3-4 months back.
  
  
• Dropping export offers/volumes: With demand from China down, export realisations are low and producers are avoiding the same. Declining exports in April were already a pointer towards this trend. If iron ore exports fell by 10% m-o-m in April, pellet exports dropped a steeper 23%. Global prices are languishing because of the China factor. China is India's largest pellet importer with a 90-95% share. Since it has gone slow amid falling domestic steel demand and production cuts, Indian exporters have been distinctly hit. Offers from India's east coast for the Fe 63% have dropped from $112/t FOB a month back to $96/t in the beginning of May.
  
  
• Expensive high-grade fines: High grade ore fines are available in limited quantities in Odisha's domestic market but at a very high price. Those pellet producers using lower grade fines, are ending up with compromised quality. This is deterring sponge makers who are preferring iron ore lumps rather than inferior quality pellets. This factor is also driving down output.
  
  

Outlook: The pellet production is likely to recover in June as players have improved production amidst rebound in exports following global price recovery.