Can India cross 1 mnt in DRI exports?

In 2013 when India’s total Direct Reduced Iron (DRI) export stood at a meager 0.13 mnt it was almost
incomprehensible to think that the country would be able to target the 1 mnt mark in overseas sales of
DRI. However, over the last few years tides in steel trade have turned drastically with India
clocking total DRI exports of 0.55 mnt and poised to propel overseas sales further.

In the light of fresh Induction furnace capacity expansions in neighbouring Nations and a
considerable rise in ferrous scrap prices, exports of DRI also known as Sponge Iron from India has
witnessed phenomenal rise over the last year, rising by almost 85 % in 2017. If current market trends are to be brought into consideration, there is a strong possibility that supply of DRI from India may well hit the 1 mnt mark over the next couple of years.

According to data maintained with SteelMint, exports of the valuable steel making raw material has risen almost three fold since 2015 when it stood at merely 180,000 mt. In the subsequent year DRI exports went up to 300,000 and they further rose to 550,000 in 2017. One of the key propelling factors for rise in overseas sales was the Bangladesh government’s decision to impose hefty import duty on billets. This compelled Bangladesh’s steel producers to maximize capacity utilization of the operating induction furnaces and to further augment capacity. This created a spike in demand for both scrap as well as DRI to feed growing Induction Furnaces.

Specifically, in 2017, exports rose significantly in November and December recording figures of 85,000
and 80,000 tonnes of overseas sales respectively. The rise occurred in proportion with increase in global scrap prices and has since then remained more or less on the higher side. According to the current demand-supply dynamics there is a limited possibility of scrap prices declining in the next few years thus clearly indicating a strong market for DRI.

Global ferrous scrap deficit

With China maintaining its 40% duty on scrap export and strengthening efforts to consume domestically generated scrap through new EAF capacities the availability of Scrap in Asia has been constrained. To make matters worse, the recently imposed tariff on steel imports by the United States of America will
push US steel generation, thus leading to higher scrap consumption. This is expected to reduce scrap exports from the USA which has been one of key Global suppliers. These factors together may possibly create a significant deficit in demand and supply of scrap.

Bangladesh, Nepal preferred export destination

Bangladesh has accounted for about 55% of total DRI exports from India in the last 3 years. Apart from duty imposition on billet import another important factor that has bolstered DRI sales to Bangladesh is direct road accessibility. Owing to severe congestion in Bangladesh sea port many Induction Furnace operators are compelled to procure raw material by the direct road route. According to trade participants in Bangladesh, almost 1.2 mnt of capacity expansion is scheduled to be commissioned in
the scrap hungry nation by end of 2018. This would create additional demand keeping DRI exports supported for in the short to medium term.

Similarly, Nepal has been witnessing capacity expansion and is likely to further augment capacity in
coming years. The landlocked country imports almost all of its raw material from India owing to proximity. The import of scrap via Indian seaport would make steel production unviable, making DRI imports a
feasible alternative.

The Iranian Challenge

Iran which stands as one of the largest producers of DRI in the world stands as major challenge for India in the international DRI export market. Iran is in a strong position to threaten Indian DRI on the price point owing to natural resource reserves. However, the nations geographical location can prove to be a hurdle in supply to major markets such as ASIAN countries. Its Geo-political equations with a number of large steel consumers such as the USA, Saudi Arabia etc. can also hinder its growth as a leading DRI exporter.