Iron ore exports to China may double in FY21

Disruption in the supply of iron ore by the world’s top two exporters – Australia and Brazil – has created a huge opportunity for India to supply its low-grade material to China, the largest consumer in the world.

Chinese steel mills, which have resumed normal production, are banking on India to tide over the shortage in supply from Brazil. Current trends indicate that India may double its iron ore exports to China during the current fiscal. Last year, Indian miners had exported close to 26 million tonnes of iron ore to China. During the first two months of the current fiscal, Indian traders have shipped around 8 million tonnes to the Chinese steel mills.

In Brazil, the production of key steel-making raw material has come down drastically due to widespread Covid-19 infections. In Australia, the production was affected due to a tropical cyclone. India, which was among the top exporters in the world till a decade ago, is now looking to export its unused quantities.

“Iron ore traders in eastern parts of the country have already shipped around 4 million tonnes of ore and pellets per month each in April and May to China. Pellet exports are in the range of 2 million tonnes per month so far. We expect to maintain the current level of exports until Brazil restores its normal supplies,” Manish Khemka, a trader from east coast told DH.

A sudden shortage in supply from Brazil and rise in demand from China has resulted in the upward movement of iron ore prices. Currently, the prices for 57-58% Fe grade iron ore are hovering around $68 per tonne, a rise of 21% over $56 per tonne traded a month ago. Similarly, prices of iron pellets have increased 18% to $107 per tonne from $91 per tonne at the beginning of April.

“Keeping in view the supply and demand side for iron ore, it is very likely that iron ore may fluctuate between the $95-100 per tonne range for a short time but any major change beyond $100 would surely be a result of supply disruption rather than a demand side driver,” Monica Bachchan, Founder, Metalogic Projects Management Services Pvt Ltd said.

The public sector miner KIOCL Ltd, a 100% export-oriented unit, has exported around 1.5 lakh tonnes of pellets to China in the month of May and has got orders for supply of another 2.5 lakh tonnes during the month of June. “Around 99% of steel mills in China have resumed production. We have got good demand for our pellets from Chinese mills. We are looking at supplying 2.5 lakh tonnes per month to China and West Asia this year,” M V Subba Rao, Chairman and Managing Director, KIOCL Ltd said.

This is the second consecutive year Brazil has seen disruption in iron ore output. Last year, a fatal dam collapse forced Brazilian miner Vale SA to cut a quarter of its production. Recently, Vale reported an outbreak of the pandemic at its mines causing disruption in the production.