India's iron ore and pellet exports rise to 2-year high in Mar'23

India's exports of iron ore and pellets rose to a two-year high of 4.36 million tonnes (mnt) in March 2023, an increase of 15% m-o-m against 3.8 mnt in February. Exports increased sharply by nearly 60% y-o-y compared with 2.75 mnt in March last year. Export shipments climbed to the highest level since over 5 mnt recorded in May 2021, SteelMint data shows.

Out of total shipments in March, exports of pellets stood at over 900,000 t, stable m-o-m, while iron ore exports increased by 20% on the month to 3.45 mnt from 2.88 mnt in February. India's iron ore exports are predominantly low-grade fines (Fe57% and below) and higher grades attract a duty of 30%. Rungta Mines and Vedanta were among the top Indian exporters in March.

Total iron ore and pellet exports in FY23 is assessed at over 21 mnt, a decrease of around 18% from over 26 mnt of exports recorded in FY22, as per SteelMint data.

Shipments fell in the recently-concluded fiscal due primarily to the export tariffs of 50% on iron ore (all grades) and 45% on pellets imposed by the government in end-May last year. The tariffs were removed towards the end of November 2022 and shipments have increased steadily since then. Exports also soared since December on buoyant demand from China following the reopening of the economy after lifting of Covid-19 restrictions.

Why exports surged?

• China demand: Steel production in China has gathered pace amid expectations of a broad-based recovery in infrastructure, construction and manufacturing activities. In February, steel output in China rose by 5.6% on the year to over 80 mnt. Worldsteel data shows. China produced 79.5 mnt in January, which is 2.3% higher y-o-y. Chinese steelmakers had ramped up steel production as they expected increased demand for their products in March when the construction season begins. The average daily production in January-February was about 2.86 mnt of steel, as per CISA data, an increase of 13.8% compared to the average daily rate in December 2022. Therefore, China's demand for iron ore remained strong. With over 18 mnt of imports last fiscal, China accounted for 85% of Indian iron ore exports in FY23. Out of that nearly 11 mnt was shipped in the last quarter (January-March 2023).
• Demand for low-grade ore: With mainstream seaborne iron ore prices increasing steadily, demand for low-grade ore, too, has risen, as mills look to cut costs. Benchmark Australian Fe62% iron ore fines prices peaked to $133/t CNF China in mid-March. However, steel prices in China fell throughout March. Standard 16 mm rebar prices fell from RMB 4,416/t ($642) on 14 March to RMB 4,261/t ($619) towards the end of the month. HRC prices, too, dropped by over RMB 100/t during the same period. Thus, the pressure on margins coupled with the surge in mainstream fines prices forced mills to look for low-cost alternatives.
• India's iron ore production rises: Provisional data with SteelMint indicate that iron ore production stood at around 26 mnt in March, with the total output in FY23 expected to be around 252-255 mnt, stable compared with FY22. Production has increased uniformly since the withdrawal of export duties on steel, iron ore and pellets. Indian merchant miners - whose production volumes were impacted heavily due to the export tariffs in Q2 and Q3 of FY23 - raised production in Q4 to fulfill their annual EC limits. Therefore, higher domestic raw material production, besides catering to increasing domestic crude steel production, ensured greater availability of volumes for exports. On the other hand, positive export market sentiments propelled domestic production. The marked recovery in merchant output of iron ore and pellets facilitated higher exports.

Outlook

Data from China's National Bureau of Statistics (NBS) shows that the manufacturing Purchasing Managers' Index (PMI), a key indicator, contracted in March compared with February. Amid the global banking crisis and a looming credit crunch, the market expects slower economic growth or even a mild recession going ahead. The export-driven Chinese manufacturing sector, therefore, may contract even further on weak global outlook.

Despite recovering property sales, the weak property market is still the main downside to steel demand as the land acquisition area remains low as well as new home starts. Policymakers are even discussing a 2.5% y-o-y reduction in crude steel output in 2023, although it is deemed too high in view of China's 5% growth target this year.

Chinese domestic steel demand stagnated in March. Steel exports increased nearly 50% y-o-y in January-February, indicating low domestic demand. Crude steel production may remain under pressure going forward. So, the demand for iron ore is expected to moderate, although shrinking steel margins may still continue to support demand for low-grade ore.