Global ore supply crisis cheers pellet industry
The global iron ore supply crisis stemming from the recent dam breach at Vale’s mines in Brazil has brought good tidings to Indian pellet producers.
Vale was the world’s top iron ore producer and a major supplier of pellets. Demand has swung in favour of Indian makers, now stepping up shipment.
“The global ore crunch has given an opportunity for Indian producers. Indian pellets are in huge demand in China and Vietnam, with exports to the two countries growing after the supply disruption due to Vale. At a time when demand for lower-grade ore is fragile, the opening of pellet export markets has buoyed export from India,” said an industry source.
On January 25, a major breach at the tailing dam of Vale’s Corrego do Feijao mine in Brazil halted its mining.
The mishap triggered a 13 per cent spike in iron ore futures at the Dalian exchange in China. On January 29, Vale announced the decommissioning of all its upstream tailing dams over the next three years, indicating a production shortage of 40 million tonnes (mt) a year. Further, a court in Brazil, as a measure of safety, ordered suspension of Vale’s operations at its Brucutu mines, creating a deficit of 30 mt a year.
Production losses from Vale’s mines spooked iron ore markets, with prices surging to $92 a tonne, the highest since 2014. There are forecasts by Citgroup and the Commonwealth Bank of Australia that prices might ascend to $100 a tonne.
All this is good news for India. An Icra Research report sees pellet export at 8.9 mt this financial year and climbing to 12.5 mt next year.
This is good news for producers, who are wrestling with thinning demand in the domestic market. According to the Pellet Manufacturers Association of India, domestic demand for pellets has come down significantly because downstream steel and sponge iron plants prefer ore lumps, where the price has fallen in recent months.
India has a pellet manufacturing capacity of 85 mt annually, but only 70 per cent of this was utilised in 2017-18. About 15 per cent was shipped for export.
Despite that, pelletisation of lower grade fines resulted in ~2,513 crore of payment to royalties, District Mineral Foundations and the National Mineral Exploration Trust. Foreign exchange inflow was $984 million, says the industry.