Posted on 17 Aug 2021
India's pellet exporters are under pressure as prices have fallen to an eight-month low in Aug'21. Shipments also fell 12% m-o-m in Jul'21 to 1.19 million tonnes (mn t).
Importantly, export realisations too have declined sharply. Global fines Fe 62% index have dropped to $160/tonne (t) tipping off from over $220/t levels touched in early May'21 and Jun'21. SteelMint's pellet export index (Fe 64%, 3% Al, FoB east coast) recorded a drop of $27/tonne (t) w-o-w to stand at $156/t, its eight-month low.
The low exports are a cause of worry for the merchant producers since one-third of the output is sold overseas. Out of India's total pellet production of around 5.6 mn t per month, captive is 2 mnt, and the balance merchant. Within the merchant, a substantial 1 mn t gets exported.
No takers for recent deals
Over the last 1-2 months, very limited export deals have been concluded from India. Tenders floated recently performed poorly. For instance, a recent KIOCL tender did not receive any response in last week's tender. China is India's largest pellets importer, but, with buyers silent, exporters frantically began scouting for alternate export destinations like Europe, Middle East and Vietnam where deals were sealed at $225/t levels CFR Europe. However, these destinations account for very small volumes and are not exactly clearing inventory. Chinese buyers, meanwhile, are not even willing to pay $170/t CFR.
Reasons for poor pellets exports:
Impact of poor export performance
Consequently, India's major pellet producers have turned aggressive in the domestic market. All key pellet exporters are eying a slice of the domestic pie. These exporters were booked for Jul-Aug'21 shipments, which have been completed. However, now they do not have future export bookings and no clarity beyond Aug'21 as of now.
Sponge makers expect drop in domestic prices
With export realisations having taken a hit, sponge iron producers are expecting a downward correction in domestic pellet offers from the prevailing INR 12,500-14,500/t levels, especially since present exports realisations are fetching around INR 10,000/t.
Buyers say producers are indicating that pellet prices may drop in the next seven days or so. However, pellet makers themselves, when approached, are mum.
AM/NS is also looking to soon start its 6-mntpa pellet plant which will add to pellet supply.
Outlook
If the current scenario persists for some time, domestic prices will likely fall, which, in turn, will drag down iron ore lumps and fines prices in the domestic and export markets. Overall, iron ore and pellets export volumes in Aug-Sept will thus be on the lower side.
However, one factor working in favour of pellet makers is the current merchant iron ore space in Odisha, where many auctioned miners may surrender their blocks if they are unable to fulfil the MDPA (minimum despatch) requirements.
JSW, finding the mining operations unviable, wants to surrender Gonua and Jajang blocks. While JSW Steel's was captive consumption, it may resume buying from the merchant market if it surrenders both. Moreover, Sarda's lease, valid till 13 Aug'21, expired Essel's will shortly. These developments will decrease ore supply.
Sponge producers are already wary of booking directly with miners, in case the latter's mine stops operating and supply gets impacted. As a result, sponge players are betting on pellets as a more reliable raw material option, a factor that may keep domestic prices firm.
"So, prices may not fall so much as to cover up the export difference," a source told SteelMint.
Source:SteelMint
