Posted on 24 May 2022
China's iron ore market has taken news of India's imposition of higher export duties on iron ore calmly, Chinese market sources said on Monday, most likely because the impact on China's iron ore and steel supply is expected to be limited.
Previously, New Delhi had levied an export duty of 30% only on iron ore with an Fe grade over 58%, but effective from May 22, the Indian government lifted the export tariff on all categories of iron ore to 50%, according to numerous local sources, while exports of iron ore pellets – previously duty-free – now attract a tariff of 45%.
At the same time, India also raised tariffs on some steel product exports to 15%, while waiving the import duty on foreign coking coal, metallurgical coke, PCI coal and anthracite coal. All of these measures are to increase domestic raw materials availability, lower the cost for the domestic industry and reduce related products' prices, Mysteel Global understands.
"The tariff on iron ore pellets is so high as to make Indian resources less affordable for overseas buyers. Consequently, exports of pellets will decline and might even be suspended," a Shanghai-based market source close to Indian iron ore market remarked.
On Monday, some Chinese iron ore traders made it clear that they would not execute contracts related to Indian iron ore pellets after June, Mysteel also noted.
Nevertheless, the latest move by the New Delhi government imposing duties on iron ore exports seems unlikely to have much impact on China's iron ore and steel industry as iron ore shipments from India to China are not very substantial currently. China has also tried to diversify its domestic and overseas iron ore sources for security of supply concerns, according to market sources.
"We expect that India's new duty policy on iron ore exports will not have a substantial impact on overall iron ore supply in China's market as the proportion is small. And even if monthly imports decline to zero in a short period, it is still not a big issue," a Zhejiang-based analyst with an iron ore trading company commented.
He also noted that the impact of any possible reduction in exports of Indian pellets to China might be slightly more obvious, but that any drop-off in Indian pellets might be easily made up with Chinese domestic pellet resources and supplies from other countries. In any case, China's steelmakers are consuming less quantities of high-Fe grade iron ore products these days while their finished steel margins remain meagre.
"Moreover, I am not sure how long India will be able to stick with imposing such export duties, as from my observation, its iron ore supply is relatively surplus compared to its domestic steel capacity," the analyst argued.
According to data from China's General Administration of Customs, out of the country's total iron ore imports in 2021 of 1.12 billion tonnes, just over 33.4 million tonnes came from India, accounting for 3% of the total. During January-April this year, the import volume only reached 5.36 million tonnes, down 70.8% on year and only accounting for 1.5% of the total, Mysteel Global observed, as the reduction in supplies globally from Russia and Ukraine meant that Indian cargoes previously destined for China now go to other countries to make up the partial loss of Russia-Ukraine tonnage.
Regarding China's iron ore pellet imports, 2021 saw the country import 6.9 million tonnes of iron ore pellets from India, accounting for 30.7% of the total annual import volume, while in January-April this year, the volume stood at 3.2 million tonnes, accounting for 46.1% of the total.
"To be honest, what is more important for now is iron ore demand, both in China and in areas outside of China, not iron ore supply," the analyst also stressed. "If China's steel demand weakens later this year, then you will see domestic steelmakers further control their production and cut iron ore consumption, and that will be another story," he said.
So far, China's domestic steel demand remains subdued by the central government's ongoing 'zero-COVID' approach to containing the pandemic spread, which in turn is dissuading steelmakers from lifting production. In any case, China's central government is insisting that crude steel output be capped again this year, which longer-term will also constrain overall iron ore demand, as reported.
Another market source in North China's Hebei noted that on Monday, iron ore market sentiment was relatively subdued in response to the news, with iron ore prices firming but not franticly so.
On Monday, the most-traded iron ore contract on the Dalian Commodity Exchange for September delivery closed the daytime session at Yuan 863.5/dmt ($129.4/dmt), up Yuan 36.5/dmt or 4.4% from the settlement price on May 20.
Source:Mysteel Global
