Key takeaways from BigMint's flagship conference

BigMint's 7th Indian Iron Ore & Pellet Summit, the 6th Indian DRI, Scrap and Steel Conference, and the 4th India Coal Outlook got off the ground concurrently some time back in Delhi. Pithy panel discussions, hectic parleys, and healthy exchange of ideas marked the flagship conference, which was attended by over 600 delegates.

Key takeaways:

Steel horizons: Unveiling capacity expansion strategies and mapping raw material demand for future growth

• Rate of economic growth and emphasis on public spending on infrastructure will largely determine expansion of steelmaking capacity.
  
  
• Iron ore beneficiation is the key issue as we have to use low-grade iron ore as we march towards 300 million tonnes (mnt) of steelmaking by 2030.
  
  
• India should see how it can minimise the cost of coal gasification. On the other hand, the availability of met coal or its feedstock, coking coal, is going to be an issue.
  
  

How is India readying itself to fulfil rising iron ore demand?

• Cost competitiveness: Auctions are a convenient way for major mills to get mines. But the spiralling premiums and are not sustainable. Certain factors can lead to premiums coming down in future. 1) Intense competition between states. 2) If global iron ore prices also drop around time of the auctions, these can impact the premium.
  
  
• Mineral tax: Jharkhand and Odisha will get the maximum levy. There will be inflationary impact on iron ore, cement, aluminium and other minerals. Should this tax have been subsumed within GST? Because GST is supposed to subsume all the state taxes.
  
  
• Beneficiation is need of the hour because high-grade ore is depleting. But challenges lie here in the form of availability of space and water, disposal of tailings, and regulatory challenges like payment of royalty etc.
  
  
• Will imports be viable for producers because beneficiation policy will take time to materialise? Because availability of Fe62-65% has declined from 123 mnt in FY'20 to 75 mnt in FY'23. On the other hand, below Fe58% production increased from 30 mnt in FY'20 to 53 in FY'23?
  
  
• Why should beneficiation policy and plants take so long to materialise? How should we speed up both, is the moot point. If the answer is imports, we do not know how we can achieve 300 mnt of crude steel production by 2030.
  
  
• If a few things are managed well by the steel and iron ore industries then we can avoid imports at least till 2030. Five enablers that can stall the industry from importing for all consumers is 1) expanding capacity to securitise iron ore supply in the short to medium term. 2) Auctions: The government should prospect for more ore and bring it up for auction. Industry needs to lobby on this. 3) Long list of clearances post-auctions. 4) Evacuation: Work jointly or individually to create good evacuation infrastructure, whether through underground pipelines or rail network. This requires strong partnership with the government. 5) Biggest point to ponder on is to find a way to dispose of low grade ore. Around 74 mnt of low-grade ore is produced and we cannot ignore it. Will there be an international market for this, especially since China's demand for this grade is coming down?
  
  
• Availability ratio in spot and long term linkages will depend on how the steel production share between blast furnace and EAF-IF changes.
  
  
• Are exports hampering domestic availability? Going forward no Indian steel mill would want to import iron ore. But if there is a mismatch in the steel capacity coming up and mining capacity and associated infrastructure, and if we do not find a solution for low-grade ore in terms of beneficiation then there will be a case for exports.
  
  

Assessing India's coking coal demand-supply dynamics

• Price volatility has remained in the steelmaking coal industry over the last twelve months, but relative to the wild price swing seen in the early 2020s, the magnitude of change in the first half of CY'24 was modest.
  
  
• For CY'25, overall seaborne supply in the steelmaking coal market is expected to be in mild surplus as supply continues to recover, but the supply of premium coals should stay relatively tight.
  
  
• China's reliance on the seaborne market has become limited over the last few years, particularly with more imports from Mongolia.
  
  
• India working to diversify import sources and on a domestic import index.
  
  

Dynamic transformation in the Indian iron pellet market

• India continues to see robust growth in pellet production, driven by rising domestic and global demand.
  
  
• However, there are challenges such as under-utilization of production capacity (averaging around 70% from FY'20 to FY'23) and supply constraints of premium-grade iron ore.
  
  
• Growing focus on prioritizing domestic pellet supply to meet rising internal demand.
  
  
• Need to diversify export markets beyond China, with regions like MENA, the EU, and JKT identified as promising alternatives, especially given China's anticipated reduction in hot metal production.
  
  
• Necessity to invest in beneficiation to improve quality of iron ore, and to ensure consistent supply of premium-grade pellets for both domestic and export markets.
  
  
• Importance of pellet quality in DRI process and need to advance the model to melting to derive actual value in use.
  
  
• Ensuring high-quality pellets is essential for reducing production costs and maintaining a competitive edge in the global market.
  
  
• Maintaining pellet quality amidst depletion of high-grade iron ore reserves a challenge.
  
  
• Integrating new technologies to reduce carbon emissions in pellet production critical for industry's future development.
  
  

Decarbonisation: Paving the path to a sustainable future

• Indian BF-BOF steel mills adopting BATs through electrification of BFs, energy engineering, fuel recirculation, large-scale adoption of renewable energy and efforts to reduce coke rate in BF.
  
  
• Natural gas availability, government intervention, costs will determine ability of domestic DRI industry to transition to a low-emissions profile.
  
  
• Raw material beneficiation, national scrappage policy to drive decarbonisation efforts.
  
  

Regulatory framework and policy implications in Indian iron ore industry

• Mineral tax to be major burden on domestic iron ore industry. Producers in certain states likely to be indiscriminately affected.
  
  
• Even though tax law can be changed in Parliament, states will still retain right to collect taxes on mineral-bearing lands.
  
  
• High tax structure in iron ore mining industry, coupled with mineral beneficiation regulation on anvil, is a deterrent to long-term flexibility of production, as well as viability of merchant producers.
  
  

Price outlook: Pricing trends of raw materials and steel

• No new merchant mining activity seen in last 5-6 years. Those mines which changed hands through bids shifted towards industry from merchant mining.
  
  
• Captive mine owners getting exemption to sell outside. There should not be any difference between captive and merchant - everything should be merchant mining. Otherwise, secondary steel mills won't be able to operate their own mines. If everything comes under captive, problems will occur. Government has been able to stop this to a large extent.
  
  
• India unable to start greenfield mining.
  
  
• Getting land during auctions would be welcome. At least 50% of land should be available with auctions. Other approvals should also come together. These will ensure gestation period becomes lesser.
  
  
• If supply increases, prices will automatically move in the right direction.
  
  
• Currently steel and raw material prices are hovering at a 4-year low. Iron prices globally have corrected by approximately 19% since January, 2023, coking coal prices by 33%, scrap by 5% and HRC, by 24%.
  
  
• Indian steel and raw material prices, since January 2023 have shown mixed trends. Iron ore prices have corrected by 5%, coal prices by 22% because of increase in Coal India's production as well as several private miners having started production. Met coke prices have corrected by 5%, scrap prices by 15%, sponge by 25%, billets by 20% and pig iron by 15%.
  
  
• India's steel industry contributes around 6-8% of carbon emissions in the country right now. If they need to move towards "green" steel, they need to use more scrap.
  
  
• Large integrated mills are increasingly enquiring for ferrous scrap.
  
  
• Qualitatively, Indian iron ore is at par with its global counterpart.
  
  
• India needs to focus on improving domestic ecosystem of recycling to generate enough scrap. Otherwise, we will face scores of challenges in the next 5-6 years.
  
  
• Prices of billet (China or South East Asia blast furnace) should touch $450/t FOB and HRC, $475-480/t FOB in the short term.
  
  

Trends and challenges in bulk vessel freight markets

• Post-Covid, there has been substantial rise in freight cost for shipping major commodities. China's import of coking coal from Mongolia will remain strong and increase further.
  
  
• Earlier, China was major buyer of Australian coking coal. Now, Australian coal is shifting towards India, Japan and Korea. However, there has been a minor contraction of around 3% in shipments of Australian coal.
  
  
• Massive potential growth in trade expected between Mongolia and China due to the commencement of the railway network between both countries in 2023 and construction of two additional rail networks is underway.
  
  
• Old ships emitting more carbon will be demolished in the next few years. As a result, supply will be tight.
  
  
• Overall, over the next five years, factors like good bauxite push, and tight supplies will support freights.
  
  
• Even though iron ore trade is cooling, there will be some positive growth, and a shift in coal trade patterns, particularly with the Mongolia-China trade picking up. From ship-owners' perspective, these factors may impact charter rates, but, for traders, these may bring respite.
  
  
• Biggest challenges shipping faces now are decarbonisation rules and regulations. Nothing will happen till 2025. Right now, IMO is collecting data and rating pollution parametres like speed and consumption.
  
  
• China is moving towards net zero with an increase in alternative fuels usage rather than depending on thermal coal. India is yet to ignore coal for next five years. So, demand for coal would be intact. However, there is need to shift more towards alternative fuels by 2030.
  
  
• India is going to be the next trend-setter in freight market after China.
  
  
• India will see a strong freight cost market for next few quarters or years due to regulations, geopolitics, and supply-demand fundamentals.
  
  

Will India be successful in cutting thermal coal imports in the mid-term?

• Domestic coal availability has improved.
  
  
• Quality of domestic coal, despite being high in ash and moisture, is improving, especially after washing.
  
  
• Share of imported coal is expected to increase, with the current range of 35-40% potentially rising to 40-45%.
  
  
• Imported coal, especially of high calorific value, will continue to be in demand, driven by increasing DRI capacity.
  
  
• Despite this, there is possibility of limiting thermal coal imports due to improvements in domestic coal quality and washing.
  
  
• Availability of coke in India has improved, which may impact reliance on imported thermal coal.
  
  
• Even after washing, domestic coal achieves only 40% fixed carbon (FC) compared to the 60% required for DRI, necessitating continued reliance on imports.
  
  
• Import prices from South Africa are a consideration, and blending ratios of 60-40 between imported and domestic coal being evaluated.
  
  
• There is a pressing need to enhance availability of domestic coal to reduce dependence on imports.
  
  

Changing dynamics of global scrap market and import opportunities for Indian mills

• GST-related issues in India's domestic scrap market significantly hindering scrap generation and impacting raw material mix for steelmaking, which is crucial in the race toward net-zero emissions.
  
  
• Streamlining scrap processing facilities and offering subsidies for local scrap collectors could help address GST challenges and promote better scrap availability.
  
  
• Initiatives and privatization of scrap yards and collection facilities needed as steel mills try to switch to scrap feed.
  
  
• Approximately, 35-40% of the scrap used in Indian steelmaking comes from unregistered sources, complicating accurate assessments of scrap potential.
  
  
• India's bulk deep-sea scrap imports are expected to be impacted due to container shortages and rising freight costs.
  
  
• Indian market will feature a mix of domestic and imported scrap, depending on geopolitical scenarios.
  
  
• Availability of other raw materials, such as iron ore, pellets, and sponge iron, will depend on regional resources.
  
  
• Globally, ferrous scrap market unlikely to experience a significant increase in export trade in Q3 and beyond as major steelmakers shift focus to alternative materials, including semi-finished goods from China.
  
  
• Decline in finished steel prices has negatively impacted raw material market sentiments and will make it challenging to procure scrap at higher prices if current scenario continues.
  
  
• In the UK and US, domestic scrap demand is expected to rise as they work towards net-zero targets by 2045 and 2050, respectively. This shift will drive need for more efficient recycling strategies.