India's pellet production rises 2% in CY22 as captive players raise output

• Merchant production falls 4% y-o-y on export duty impact
  
  
• Around 35% of total production used in BF route, rest by sponge sector
  
  
• Country's pellet capacity to increase to 130 mnt in near term
  
  

Iron ore pellet production in India is projected to increase by an estimated 2% y-o-y to over 78 million tonnes (mnt) in calendar year 2022 (CY22) from over 76 mnt in CY21, SteelMint data shows. Production may rise slightly on the back of higher crude steel production due to increased domestic demand despite the imposition of export tariffs on steel and steelmaking raw materials which impacted the market through most of the second half of 2022.

Captive vs. merchant output

The marginal rise in pellet production is largely attributable to increased output by the captive producers - mainly the integrated steel producers. In fact, production by the captive players is expected to offset the decline in merchant output, which is estimated at around 4% y-o-y.

Merchant production was heavily impacted by the draconian 45% duty slapped on pellet exports - from zero previously - towards the end of May 2022. Due to the sheer unviability of exports, pellet shipments in the period under review dropped 28% to 7.44 mnt from 10.31 mnt in CY21. The share of exports to total production, likewise, fell to 9.5% from 13.5% in CY21. Apart from the decline in exports, merchant pellet capacity utilisation fell post duty imposition due to substantially curtailed offtake amid supply glut in the domestic market and bearish steel market sentiments.

SteelMint estimates that 30-35% of total pellet production is used by the captive players in blast furnace iron-making, while the rest is used by the sponge iron sector.

Along with rising crude steel capacity in India, sponge iron production is growing. The country's DRI output, which was a little below 40 mnt in FY22, is expected to rise to 50 mnt by 2030. Likewise, pellet usage in sponge iron production is increasing fast. The share of pellet-based DRI in India has increased to around 65% against 35% for iron ore lump-based DRI. One key reason is that iron ore lump availability and deliveries remain tight, and so sponge players are shifting towards pellets for quicker deliveries.

State-wise production

Odisha remained India's leading pellet producing state with total output at over 23.6 mnt. However, output declined by over 6% y-o-y from 25.22 mnt in CY21. Production was affected in the state due to the negative impact on merchant pellet output as mentioned above. Likewise, Odisha's share in the country's pellet production decreased to 30% from 33% in CY21. Odisha pellet production capacity stands at over 38 mnt, as per SteelMint estimates.

Production in Karnataka declined marginally to 17 mnt, with the state's share in India's total production falling to 22% from 23% in CY21. However, Jharkhand witnessed a significant hike of over 20% in pellet production in CY22: output rose to over 10 mnt from around 8 mnt in CY21 as greenfield units came onstream in CY22. The state's share in India's pellet production, moreover, rose to 13% in CY22 from 11% in the preceding year.

Leading producers

The primary steel mills emerged as the leading pellet producers in CY22. JSW Steel (including both standalone production and that of its subsidiaries) was the top producer with over 19 mnt. The steel major increased output by about 10% y-o-y from 17.5 mnt in CY21. With pellet production capacity of around 20 mnt per annum, AM/NS India raised production to an estimated 13.6 mnt from 11.9 mnt last year. JSPL and Tata Steel posted output at 8.2 mnt and 7.6 mnt, respectively - higher y-o-y.

Use of pellets in blast furnace steelmaking is gaining traction. This is because increased use of pellets enables permeability in the furnace and seamless gas flow within it, as well as smooth descent of the ferrous burden. This facilitates energy efficiency by way of reduced coke consumption and chemistry control. The primary mills have increased the pellet burden in BF to around 25% at present, which is expected to go up to 30-35% in the coming time.

Outlook

India's pellet capacity has risen exponentially over the past few years. Total capacity is expected to increase to 130 mnt in the coming time from 126 mnt at present. Current capacity is around 16% higher than 109 mnt in FY22. As per SteelMint assessment, significant capacity additions by the captive players happen to be the key reason. Capacity in Karnataka is expected to increase to 35 mnt from 27.7 mnt at present.

Going forward, pellet production is set to increase in order to reduce the carbon footprint of steelmaking, utilise the abundant low-grade iron ore reserves available in the country, and increase the operational efficiency of primary steelmaking.

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.