Is Indian market likely to face iron ore shortage? Let's do the math

• Iron ore demand to rise 12% y-o-y in FY'24
  
  
• Domestic demand, exports to outstrip production growth
  
  
• Imports may rise sharply. Will trend persist?
  
  

Morning Brief: India - perhaps the lone bright spot on the global steel map - is likely to witness its production of crude steel increasing by roughly 11% y-o-y to 142 million tonnes (mnt) in financial year 2023-2024 (FY'24) compared with 127 mnt in FY'23, as per projections by BigMint based on statistical dissection of available data.

While the country's production of hot metal from the BF-BOF route (including marginal HM production from smelting processes) is likely to increase 6% y-o-y to nearly 86 mnt in FY'24, growth in DRI production, mainly to feed steelmaking through the electric route, will be around 16% y-o-y, with sponge iron production expected to exceed 50 mnt.

Naturally, steelmaking at such a huge scale will keep iron ore demand firm, especially as the developing Indian economy does not have a large enough ferrous scrap pool on which to depend for steel production.

Will iron ore market remain tight?

• Demand to climb higher: India's iron ore consumption is expected to increase by 12% y-o-y to over 230 mnt in FY'24, driven by growth in steel production.
  
  
• Production growth: India's iron ore production is expected to increase by 10% to 282 mnt in FY'24 backed by an increase in output by PSU miners such as NMDC and OMC, as well as private miners like Lloyds.
  
  
• Exports to surge: India's total exports of iron ore (including pellets and the pellet-equivalent of iron ore) may increase sharply by over 135% y-o-y to around 50 mnt. Low-grade iron ore and pellet demand has been strong from China amidst low domestic steelmaking margins and high mainstream seaborne iron ore prices.
  
  
• Imports to rise sharply: Iron ore imports are likely to increase from 1.4 mnt in FY'23 to 5.6 mnt in FY'24 - projected to rise by 300% due to quality considerations, logistical bottlenecks and cost-competitiveness. Indian iron ore imports are likely to remain on the higher side on higher crude steel production target, tight availability of high-grade ore in Odisha, as well as prevalent logistical bottlenecks and high freight costs.
  
  
• Inventory drawdown: Surplus iron ore supplies in the domestic market were pegged at around 24 mnt in FY'23, which will likely inch down to 5 mnt in FY'24, and that, too, will largely be low-grade ore, as per BigMint assessment. This will necessarily create a crunch in the market, which may not be so much related to volume but to ore quality and steelmaking demand.
  
  

Outlook

This brings us to the question as to whether there is supply tightness in the domestic iron ore market. BigMint data show that iron ore inventory in the domestic market at the end of FY'24 will likely be 5 mnt of predominantly low-grade ore, generally not preferred by domestic steel producers.

Hence, despite production expected to edge up by 10% y-o-y in FY'24, the domestic iron ore market may experience considerable supply pressure due to various reasons. Iron ore prices in the domestic market, therefore, are less likely to drop sharply from current levels amid strong demand and tight supplies.