Iron pellet

Iron Pellet is a sustainable and secured raw material source for Indian Steel Industry, which is growing at a fast pace and has been battling an Iron ore supply crisis since FY12.

In last few months, Iron Pellet exports have picked up sharply supported by weak Rupee against USD and better realizations in global market. Some of the industry associations have raised objections and asked government to impose a 30 per cent export duty on Pellets which was withdrawn in the Union Budget FY12.

Pellets, a value added product formed by agglomeration of low grade Iron ore fines, was earlier exported from India in large quantities.

Data compiled by Steel 360 shows Pellet exports are still low in comparison to quantity exported in FY09, when KIOCL was considered a 100 per cent export oriented unit.

Availability of Pellets for merchant sales will continue to move up because of increasing capacities. And, Indian Sponge iron production has come down drastically and plants are operating at low capacities. Hence, Pellet export from India is expected to sustain in FY15 and will continue to remain in hands of a few big players namely JSPL, KIOCL, Essar & BRPL over advantages of either being located near port or mines pit head.

Merchant availability from big players at around 13 MnT presently, is expected to touch 17 MnT in FY15. Another reason as to why Pellet exports will sustain is close down of many Sponge iron units, the largest consumer of Pellets. Also, Steel makers using Blast Furnace (BF) route will still prefer Sinter over Pellets.

Iron pellet

Risk to Exporters

  • Distance Based Charge (DBC): Distance based charge on Iron ore transportation for manufacturing of Pellets, subsequently meant for exports, and was imposed by railways in 2012. Costing of Pellets for overseas sales is higher by about INR 1,600/MT. KIOCL was deprived of export market for 1.3 years and is waiting for a decision against writ petition to railways, filed in July 2012. In Oct, 2013, PMAI wrote to Ministry of Railways for withdrawing DBC.
  • Rupee: Rupee is at 62 against USD. Once Rupee appreciates, export will not be feasible over poor margins in comparison to domestic sales.
  • Chinese Demand: Most of Pellets is exported to China, looking at lower freight charges. Indian exporters are dependent on Chinese market requirement, which is inconsistent.
  • Port Capacities: Most of Pellet plants prefer Paradip Port owing to higher logistics cost to other ports. This might limit scope of Pellet export, if Iron ore export grows from Paradip Port.
  • Shah Commission Report: Uncertainty in Shah Commission report around capping Iron ore production in Odisha might impact Pellet industry. If requirement in domestic market improves, better realizations will offset export.