India's pellet production rises 7% in FY23 amid increasing capacities

• Mills expand pellet usage with eye on decarbonisation
  
  
• Capacities, production likely to increase on increased backward integration
  
  

Morning Brief: India's pellet production was recorded at a provisional 84 million tonnes (mnt) in financial year 2022-23 (FY23), up 7% y-o-y, as per data maintained with SteelMint. Volumes in FY22 were at 78.40 mnt.

Company-wise production

The leading pellet producer as a standalone mill last fiscal was JSW Steel at 16.7 mnt followed by AM/NS India with 13.3 mnt (13.2 mnt in FY22). JSPL recorded production of 7.6 mnt, almost flat y-o-y.

All the above figures are on a provisional basis.

State-wise production

Odisha enjoyed the lion's share of 31% in India's pellet production in FY23, as per data, followed by Karnataka with 21%. Jharkhand and Maharashtra each had a share of 11% and Chhattisgarh ranked fourth with 10%. West Bengal was in fifth slot with 8% and Andhra Pradesh in sixth with 7%.

What factors resulted in increased volumes in the last fiscal?

• Increase in pellets capacities: India's pellet capacity increased 18% to 133.3 mnt in FY23 from 112.5 mnt in FY22, which also managed to increase the volumes stable last year. A couple of reasons have helped to boost capacities.
  
  

• Preference to pellets over sinter: First, as governments become increasingly aware of environmental degradation, the pressure is mounting on mills to opt for greener steel production routes. It is seen that pellets have higher environmental benefits over sinter. As a result, mills are not only increasing their captive production of pellets but enhancing its share in their blast furnace burden. The mix has changed over the last couple of years, and is currently thus: sinter-60-65%, iron ore lumps- 15%, and pellets-20-25%, for mills that have set up captive pellet units. Against this backdrop, it may be recalled, in 2021 alone, over 70 mnt of new pellet capacity was accorded environmental clearances as well as the content to establish (CTE).
  
  

Secondly, pellets are more easily available compared to iron ore, having a quicker delivery cycle of around a week, since these are transported via road. Iron ore, on the other hand, needs to be moved via rakes which are difficult to book since most are diverted towards carrying coal to power utilities. The iron ore delivery lag period is around a month.

• Increase in crude steel output: India's crude steel output rose by 4% y-o-y in FY23 rose by 4% y-o-y to 125.32 mnt against 120.29 mnt in the same period last year.
  
  
• Export duty impact: If studied on a monthly basis, the data reveals that production volumes were impacted by nearly 19% m-o-m in June 2022 when only around 6 mnt were seen. It may be recalled the government had slapped a 45% export duty on pellets from the third week of May 2022.
  
  

Feeling the duty heat, pellets exports naturally had plunged more than 78% to 6.26 mnt in FY23 from 11.17 mnt in FY22.

Pellet output volumes, however, revived to around 7.5 mnt from December 2022 onwards with the withdrawal of the duty in November last.

Outlook

SteelMint expects both production volumes and capacities to increase, in the medium to long term, since mills are increasingly opting for backward integration. Mills which have captive sponge iron units, are also showing a growing propensity for setting up captive pellet units as well, eschewing procurement (of pellets) from the merchant market, with an eye on greener production methods."Having a captive pellet plant is a win-win situation. Mills can opt for pellet exports if domestic steel consumption drops and likewise balance out their production,"explained a source.