March 14, 2019 I Industry Research

Iron ore industry update:

March 2019 India is one of the few countries globally which produces both iron ore
as well as steel in large quantities of more than 100 mn tonnes. With
India being the 4th largest iron ore producer, its total production in
FY18 stood at 200.95 mn tonnes. In Q1-FY19, it grew by 51.58 mn
tonnes, as depicted in chart 1.
Contact:

Madan Sabnavis Chart 1: Iron ore production in Q1-FY19 (‘000 tonnes)

Chief Economist
madan.sabnavis@careratings.com 17,495
+91-22- 6754 3489 17,500
17,300 17,128
17,100 16,960
Vahishta M. Unwalla
16,900
Research Analyst
vahishta.unwalla@careratings.com 16,700
+91-22-6754 3607 16,500
Apr-18 May-18 Jun-18

Mradul Mishra (Media Contact) Source: Indian Bureau of Mines

mradul.mishra@careratings.com
+91-22-6754 3515 Imports

Iron ore imports by India (chart 3) surged 157% in 9M-FY19 compared

with 9M-FY18. Out of the total imports of 11.75 mn tonnes in 9M-FY19,
Australia’s share was highest at 57%, which has more than tripled
compared with corresponding period last year. The other countries
from which India imports iron ore and its shares are South Africa (19%),
Brazil (15%) and Bahrain (5%).

In July-18, imports peaked at 1.93 mn tonnes, the highest in any month

in past 5 years.

Surge in imports can be attributed to varying ore grades in multiple iron

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ore producing states, which leads to price differences. While the
logistics cost for steel plants located on coastal India rose, steel players
shifted to imports for sourcing their key raw material, instead of buying
at inflated domestic prices. In addition to this, a significantly low import
duty of ~2.5% encourages iron ore imports in the country.
A decline in imports was witnessed Aug’18 onwards, which can be due
to the strengthening of USD, which reduced spreads between landed
cost and domestic prices of iron ore, making imports less preferred by
Indian steel makers during the period.
 Industry Research I Iron ore industry update: March 2019

Chart 2: Monthly imports of iron ore and Chart 3: Imports of iron ore and
concentrates in 9M-FY19 (‘000 tonnes) concentrates (‘000 tonnes)
15,000
3,000 11,754
1,928
2,000 1,583 1,497 1,612 10,000 157%
1,044 913 1,005 1,126 1,046
1,000 4,566
5,000 3,808 20%
-
May-18

Jun-18

Aug-18

Sep-18

Nov-18
Oct-18

Dec-18
Apr-18

Jul-18

-
Apr-Dec'16 Apr-Dec'17 Apr-Dec'18

Source: CMIE Source: CMIE

Exports

Indian iron ore exports declined 32% to 12.7 mn tonnes from Apr’18-Jan’19, compared with a fall of 17% from Apr’17-
Jan’18. China was the principal iron ore importer from India with 74% share or 9.4 mn tonnes, followed by Japan, South
Korea, Oman and Malaysia. Export duty in India for iron ore is high at ~30% currently.

Chart 4: Monthly exports of iron ore and Chart 5: Exports of iron ore and
concentrates in 9M-FY19 (‘000 tonnes) concentrates (‘000 tonnes)
2,000 1,596 1,683 1,604
1,532 1,599 25,000 22,501
1,500 1,298 18,632
1,053 20,000
1,059 12,714
1,000 757 15,000 - 17%
534
500 10,000 - 32%
5,000
- -
May-18

Jun-18

Aug-18

Sep-18

Oct-18

Nov-18

Dec-18

Jan-19
Apr-18

Jul-18

Apr'16- Apr'17- Apr'18-

Jan'17 Jan'18 Jan'19

Source: CMIE Source: CMIE

Iron ore pellet exports

Iron ore pellet exports stood at 6.5 mn tonnes in 9M-FY19, a decline of 12% in 9M-FY19. China is the principal iron ore
pellets importer from India with 74% share or 4.8 mn tonnes during the period. Exports to China have also declined 18% in
9M-FY19, compared with corresponding period last year. Uncertainty of winter output cuts in China and slow inquiries
from non-Chinese market resulted in a drop in pellet exports from India.

Chart 6: Indian exports of agglomerated iron Chart 7: Indian exports of agglomerated iron
ore pellets to all countries (‘000 tons) ore pellets to China (‘000 tons)

7,430 8,000
8,000 5,940 6,513 5,463 5,884
6,000 4,811
6,000
25% - 12% 4,000 8% - 18%
4,000
2,000 2,000
- -
Apr-Dec'16 Apr-Dec'17 Apr-Dec'18 Apr-Dec'16 Apr-Dec'17 Apr-Dec'18

Source: Department of commerce

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 Industry Research I Iron ore industry update: March 2019

Domestic price trend

Prices of high grade lumps and fines rose ~65% and ~25% in FY19 (up to Nov-18) and reached its highest level in past 5
years. Domestic prices are largely dependent on the Indian steel market, rather than the international iron ore prices.

NMDC, the country’s largest iron ore producer undertook 4 price cuts in past 3 months -- 2 in December, 1 in January and
1 in early February. February onwards, after a ~5% hike was seen in varied products of domestically produced steel,
NMDC decided to hike its prices of fines and lumps by Rs.400/tonne in Feb end. Though the domestic iron ore price rise
has negatively impacted cost structures of domestic steel producers, they coped up by raising steel prices supported by
healthy domestic demand.

Chart 8: Domestic price trend (Rs./tonne)

65% and above Fe Lumps 65% and above Fe Fines

Below 55% Fe Lumps Below 55% Fe Fines
6,000 5,161 5,349
4,805 5,166
4,565
4,210 4,307
4,220
4,000 3,648 3,501 3,529
3,106 3,264 3,289
2,993 2,946

2,000 1,193 1,079

1,053 902 988 1,062
1,077 897
745
689 583 580 635 629 802 774
0
Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18

Source: CMIE

Global iron ore prices

As seen in chart 9, while global iron ore prices were stable in the range of USD 65-75/ dmtu up to Dec-19, they peaked in
Jan and Feb-19 to reach USD 88/dmtu, the highest since Aug-14, which can be attributed to the Vale’s mine dam collapse
in Brazil in Jan-19. Worries on global iron ore supply crisis inflated the global prices of the ore.

Chart 9: Iron ore (any origin) fines, spot price, c.f.r. China, 62% Fe in USD/dmtu*

88
90
76
80 73 73
67 68 69
66 66 65 65
70
60
Dec-18
Apr-18

May-18

Jun-18

Oct-18
Aug-18

Nov-18

Jan-19
Jul-18

Sep-18

Feb-19

* dry metric ton unit (dmtu) is the internationally agreed-upon unit of measure for iron ore pricing.
dmtu has the same mass value as a metric tonne, but the material has been dried to decrease the moisture level.

All prices are monthly averages

Source: World Bank

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 Industry Research I Iron ore industry update: March 2019

Outlook

- We maintain our outlook for FY19 where production of iron ore is expected to grow by ~2-5%. Domestic iron ore
demand will be dependent on domestic steel demand, which has seen strong growth during the year. Domestic
demand is expected to be met with the huge iron ore inventory piled up at the mines pit-head, in addition to new
production during the year.

- We expect export of Indian iron ore pellets at 8-9 mn tonnes by the end of FY19. China will continue being the largest
importer of Indian pellets, seeing its preference shift from Indian iron ore fines to pellets, due to pressures of
controlling pollution emissions.

- Vale’s dam collapse and suspension of operations at Brucutu mine is expected to inflate global prices in the short
period. While this calamity is expected to bring an annual production loss of ~70 mn tonnes, it forms a minimal ~3%
of the global production. However, Brazil being one of the largest producers of high grade iron ore, could impact its
supply.

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