iron ore: New duty makes iron ore pellet export unviable, prices to crash by 30%: Report

The new 45% export duty levied by the government on iron ore pellets last month has made export of the material unviable and the prices are likely to correct by up to 30% because of this, according to an report.

The government levied a 45% export duty – compared to nil earlier – on iron ore pellets effective 22 May. The move was meant to discourage export and thus arrest the price inflation in the domestic market.

Consequently, the contribution margins of merchant pellet players are expected to decline roughly by Rs 1,000 per metric tonne from pre-duty levels, the report noted.

“India exported more than 11 million tonnes of pellets in FY22, accounting for almost 15% of its overall pellet production,” said Jayanta Roy, senior vice-president and group head for corporate sector ratings at ICRA.

“With exports becoming unviable, industry asset utilisation will be adversely impacted, and domestic pellet prices would come under pressure going forward,” he said.

Pellets are a raw material input used to make iron in a blast furnace which is further used for steel production. While most of the iron ore pellet capacity in India is with integrated steelmakers who produce them for captive use, there also are significant merchant plants that produce them for sale to steelmakers in India and overseas. These include Brahmani River Pellets, BSE-listed

and the Rashmi Group as well as a host of smaller producers.

Out of the total 110 million tonnes installed annual capacity for pellets in India, 72 million tonnes are with top integrated steelmakers, according to Priyesh Ruparelia, vice president and co-group head at ICRA. The rest 38 million tonnes are with the remaining smaller steelmakers and merchant pellet makers.

A revival in international pellet prices following a global shortage could bring some respite to the merchant pellet players, the ICRA report noted.