Fortune of Indian iron ore producers linked to China-related trade

When it comes to iron ore exports, India’s main destination is China.

By Kunal Bose

India’s largest government-owned iron ore producer, NMDC, recently reduced the price of lump material containing 65% iron (fe) from Rs 200 to Rs 5,950 per tonne and the price of fines by 64% of Fe from Rs 400 to Rs 4,760 per ton. Earlier, since July of this year, the company, which targets production of 47 million tonnes (mt) in 2021-2022 from 35 mt last year, had three opportunities to reduce the prices of lump sums and fines.

Steelmakers benefiting from high finished product prices – for example, according to Argus, Indian Hot Rolled Coils (HRCs) ordered a price of Rs 65,000 per tonne earlier this month, registering a smart 62% increase from the year before – would have found cause for celebration because of the drop in iron ore prices if blue chip hard coking coal had not traded at an extremely high price of $ 410 per tonne. The price of coal used in blast furnaces (BF) as a reducing agent has appreciated more than three times since the start of 2020.

Trade officials say the shutdown of production at mines in China’s coking coal production hub in Shanxi province, along with the September drop in exports from Australia’s main production hub, Queensland, have pushed up coal prices. In the case of iron ore, the government has imposed a discipline on steel production in China, where the manufacture of ferrous metal is a major source of carbon emissions and hence fouling of the environment which embarrassment to President Xi Jinping is seen as the main reason for iron ore price declines in recent months, while disruptions in coal production in China and declining supplies to Queensland remain a problem. serious concern for steelmakers based at BF all over the world.

With India being very dependent on coking coal of foreign origin, there will now be a significant incremental outflow of foreign exchange on imports of this steel ingredient. The country imported more than 51 tonnes of coking coal in 2020-21. Unlike thermal coal, the country not only has limited coking coal resources, but what is available contains very high percentages of ash. While Australia remains the primary source of our coking coal imports, we source metallurgical coke primarily from Poland, Colombia, Russia and Japan.

With resources close to 30 billion tonnes (bt) placing India among the world’s major owners of iron ore, the country has the capacity to generate significant export surpluses, provided of course the Goa mines. which have remained closed since mid-March 2018 by decision of the Supreme Court. come back to life and the miners of Karnataka obtain the authorization of the court to export. Remember that India, then the world’s third largest exporter after Australia and Brazil, shipped 117 tonnes of iron ore to the world market in 2009-2010. But then, due to a combination of court orders and the misguided docking of New Delhi’s export duties at extremely high levels, Indian exports hit lows initially below 16 t in 2013- 14, then to 5.5 t in 2014-15. As India lowered import tariffs on low and medium grade minerals, exports have since picked up.

When it comes to iron ore exports, India’s main destination is China. For example, according to the General Administration of Customs of China, imports of Indian iron ore from this country jumped 88% last year to 44.8 t from 23.8 t in 2019. However, the increase of 21 t was only 1.5% of the total 1.4. bt that China imported in 2020. While these exports to China have been the largest number for several years, the redeeming part is that almost two-thirds of shipments had an iron content of less than 48%. This relieves the iron ore industry here, as local steelmakers have a clear preference for lumpy, high iron fines. An ongoing problem for the industry is a mountain of mine head stocks which not too long ago climbed to around 165 mt. To a large extent, therefore, the fortunes of India’s iron ore producers in terms of exports and prices are linked to trade linked to China.

It cannot be otherwise, since China alone accounts for nearly two-thirds of the maritime trade in iron ore, which is the second most traded commodity in the world after crude oil. No wonder when Beijing imposed nationwide steel production restrictions since June following the disappearance of stimulus spending, Asian ore prices saw a dramatic correction in the third quarter with the IODEX index. falling 46%. In fact, prices will continue to remain under pressure due to the combined pressure of low steel production and power shortages in China. As some Chinese factories were under pressure to resell the volumes of iron ore contracted, the market found itself in a situation of oversupply.

The Chinese building and construction sector alone accounts for between 50 and 60% of total steel use. Demand for steel has started to decline in recent months driven by government attempts to cool the overheated real estate market and reduce the economy’s high debt levels. Real estate developers, who have already accumulated large volumes of debt, must now deal with stricter borrowing criteria. Along with the slowdown in construction activity, Beijing has imposed emission reductions ranging from 30% to 50% on a number of steel plants in Tangshan, the country’s largest steel center. The fact that all of these government policies have an impact on steel production is confirmed by the August production drop of 13.2% to 83.2 million tonnes year-on-year. Also in July, production fell 8.4% to 86.8 mt. No wonder Australia’s Department of Industry and Resources has forecast the price of iron ore to drop to $ 93 per tonne by the end of 2022.

(Former FT correspondent, author is now India correspondent for Euro Money Publication, Metal Market Magazine. Opinions expressed are personal)

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