ICRA Sees Reduction in Indian Iron Ore Pellet Export in H2 of 2021
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ICRA Sees Reduction in Indian Iron Ore Pellet Export in H2 of 2021

Indian credit ratings agency ICRA Ratings said that “The ongoing rally in international pellet prices is driven by strong Chinese demand and limited

Indian credit ratings agency ICRA Ratings said that “The ongoing rally in international pellet prices is driven by strong Chinese demand and limited suppliesfrom Brazil. However, steel production cuts by China to curb carbon emissionsand improvingsuppliesin Brazil following production ramp-up by Samarco and Vale could spoil the rally. This, in turn, could dent Indian pellet export, which has been on a rising trajectory since 2019. Besides, domestic pellet prices remain more remunerative compared to exportsat present, which would further disincentivise pellet exports in H2 of 2021.”

ICRA said “Chinese pellet imports surged in 2020 following the restraints on sintering activities by the Chinese Government to curb carbon emissions. China imported 45.0 million tonne pellets in 2020 against 32.6 million tonnes in 2019. On the other hand, Brazil reported a fall in pellet exportsto 15.5 million tonne in 2020 from 24.4 million tonne in 2019 due to continued supply-side constraints as an aftermath ofthe tailing dam disaster, thereby resulting in a 4% contraction in global supplies. Consequently, international pellet prices witnessed a significant uptick of145% to USD 287 per tonne CFR China over the last one year, driven by strong demand and limited supplies.”

ICRA said “China has plans to achieve peak carbon emissions by 2025 for the steel sector and cut the emission volumes to 70% of current level by 2030. To achieve these targets, the Chinese Government has announced production cuts for the steel sector in 2021. It has also abolished export rebates on 146 steel items with effect from May 1, 2021 to discourage steel exports. These measures could weaken China’s appetite for imported pellets in H2 of 2021.”

ICRA added “On the supply side, Brazilian pellet exportsarelikely to increase with Vale & BHP JV Samarco Mineração having a pellet capacity of 30.5 million tonne per annum resuming operations in Q1 of 2021. Samarco was forced to stopproduction following tailing dam collapse in Bento Rodrigues Brazil in November 2015. It expects to produce 7-8 million tonnes in 2021 and rampup the production further in 2022. Vale, which reported pellet production of 29.7 million tonne in 2020,is likely to maintain the production at similar level in 2021 and increase the sameto 50-60 million tonne in 2022As a result, pellet exports from Brazil are set to increase to 23.5 million tonne in 2021 from 15.5 million tonne in 2020,supported by the production ramp-up by Samarco, though the same is expected to remain39% lower than 2018 export levels. Expectationsof lowerChinese demand and easing supply constraints could cool down theongoing breakneck pellet price rally in H2 of 2021.”

ICRA said “Indian pellet exports rose by 75% to 13.9 million tonne in 2020 from 8.0 million tonne in 2018 to partially bridge the gap created by falling Brazilian exports. Despite the healthy export demand andremoval of the 5% export duty on pellets in2016, overallexports from India remined low at an absolute level owing to logistics constraints, including rake availability, as most of the pellet capacities in India are located far away from ports. Nonetheless, India was the biggest beneficiary of the curtailment in Brazilian exports. China remained the major export destination for Indian pellets, accounting for 83% of total pellets exported by India in 2020, followed by Malaysia at 6%, Oman a 5% and Indonesia at 4%. India’s exports to China picked up by 11% YoY to 11.1 million tonne in 2020.Healthy export demand resulted in a sharp rise of 60% in Indian pellet export prices in H2 of 2020. However, going forward, steel production cuts by China and improving supplies from Brazil could act as headwinds, and dampen Indian pellet exports in H2 of 2021.Also, domestic pellet prices had risen sharply since November 2020 on the back of a surge in domestic iron ore prices and the rally in seaborne pellet prices. While the domestic pellet pricesare currently lower than the export FOB prices, the gross contribution level in the domestic market is higher than exports, thereby further reducing the attractiveness of export market vis-a-vis domestic market. With the second wave of the pandemic tapering off, the domestic prices are likely to remain firm, supported by a recovery in end-user segment demand.”

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