Iron ore Pelletisation in India is set to achieve multifold growth. Pellet production is escalating with an astonishing rate of almost 50% Y-o-Y.
In FY12, Pellet production in India was at around 35 MnT, which rose to 49 MnT in FY13. And, it is expected to achieve around 75 MnT in FY14. Though, Pellet production is escalating with an astonishing rate, few constraints specifies that accretion in Pellet production seems likely to stall in near future.
India is the fourth largest steel producing country in the world with annual production of around 78 MnT, after China, Japan and US. India’s expeditious economic growth and soaring steel demand from sectors like infrastructure, automobiles & real estate, has put Indian steel industry on the global map.
Pellet, formed by agglomeration of Iron ore fines, is used as a raw material for steelmaking and its availability going forward owns a very prominent space in development of the industry.
Pellet Production Scenario
In 2009, Steel companies discerned the significance of establishing Pellet plants in India. Companies noticed that escalating consumption of high grade Iron ore lumps for steelmaking will become questionable for the country. This credence became stronger in 2011, when Government imposed an export duty of 30% on Iron ore and the Supreme Court banned Iron ore mining in Karnataka, leaving steel companies in a devastated state. Therefore, the significance of Pellets has increased manifold. This invigorated the companies to set up Pellet plant across the country which upsurges Pellet production in India.
However, at one end, Pellet plants are escalating their production and on the other hand, demand seems to be stagnating in the market.
Prominent factors to watch out
- Insecure supply of Iron ore: To meet the escalating demand of Iron ore, there are only two alternatives; one is to find new resources of raw material which is less probable and other, to use the existing resources judiciously. For this, Government has issued many restricted protocols to conserve Iron ore mines owing to which supply of Iron ore is insecure.
- Unpredictable Government Policies: In India, Government had issued many firm policies that have reinforced the steel industry. Few policies based on illegal mining, environmental issues, labor issues, rise in export duty & freight charges have taken investors on back foot.
- Companies hold Clearance for Plants, not commissioning: Across India, almost 84 companies had taken clearance for establishing Pellet plants. But, owing to high investment cost and unpredictable government policies, no one commissioning it. Merely, one or two companies have placed orders for Pellet equipment in 2013.
- Limited Scope in Export Market: India, the third largest global exporter of Iron ore in the world, had exported 117.3 MnT in FY10 which get declined by 60% in FY12. Exports may not be a big alternative for Pellet manufacturers of India. Several bottlenecks like differential based freight charges by Indian Railway, average quality & proposed duty on exports of Pellets will keep exports subdued.
- Margins likely to fall down in coming time: Many steel mills or merchant manufacturers are not concerned on setting up a Pellet plant in India owing to an apprehension that margins may likely to fall in near future.
Conclusion & Outlook
The expeditious growth of steel industry is strategic & vital for overall growth of the country. The Indian steel industry was shattered owing to limited availability of Iron ore, it is most likely to get a sigh of relief after availability of Pellets increases. We can’t rule out the significance of Iron Pellet, but factors like government policies, falling margins, high capex cost and low return on investments point out that Pellet boom may come to an end.
Indian Iron Pellet future seems to be shaky; increased capacity will certainly create an oversupply situation in the country. In such a scenario, Indian pellet manufacturers have to either cut down their utilization rate or sell at a cheaper price.