Iron ore output to rise 5% in FY19 on stable demand from infra, auto

Domestic iron ore production is projected to grow by five per cent in 2018-19, helped by a stable demand from the infrastructure and automobile industries. Apart from the anticipated growth in production, demand for iron ore inside the country will be met by the accumulated ore stocks at mine heads, chiefly in the states of Odisha and Jharkhand which between them account for 80 per cent of the piled up inventory.

In FY18, the country produced 210 million tonnes (mt) of iron ore, up nine per cent year-on-year and breaching the 200 mt mark in output after a hiatus of seven years. Iron ore production had peaked at 218 mt in 2009-10 and later slumped by 40 per cent to 136 mt in 2012-13 as key producing states such as Karnataka and Goa were burdened with court-ordered mining bans.

Last fiscal witnessed iron ore output climbing to a high and the same uptrend is expected in 2018-19. “The Supreme Court has hiked the annual production cap in Karnataka from 30 to 35 mt. This will help bring some incremental production. NMDC, the largest miner, has also vowed to scale up output this fiscal”, a metal sector analyst said.

A report by CARE Ratings shows how iron ore pellets are outpacing high-grade fines in the international markets, especially China. “Chinese steel mills prefer pellets over fines as they are under pressure to cut polluting emissions and are seen to be cutting down volume bookings for high-grade Indian ore fines with high alumina content. While iron ore fines exports attract a tax of 30 per cent, iron ore pellets exports attract nil or minimal tax and is acting as a contributing element for local traders and manufacturers to push higher pellet volumes overseas”, the report stated.

China is the principal buyer of Indian iron ore pellets. In last fiscal, out of a total basket of 9.31 mt of pellet exports, China’s share was 81 per cent. In this fiscal, iron ore pellet exports are set to touch 10 mt. Total iron ore exports by volumes were 24.2 mt in FY18, a fall of nearly 20 per cent over FY17 figure of 30.73 mt.

About 90 per cent of the iron ore mined in the country was for domestic use. The residual ore was shipped to China, Japan, South Korea, Oman, Vietnam, Indonesia and Malaysia. As per data by the Centre for Monitoring Indian Economy (CMIE), iron ore exports during April-July of this fiscal stood at 4.98 mt.

Amid a robust production outlook, CARE Ratings estimates iron ore prices to be in the range of Rs 3,000-3,500 per tonne for lumps and Rs 2,600-2,900 for fines in FY19.

NMDC, the largest producer had recently announced hike in iron ore prices to Rs 3,350 per tonne for lumps and Rs 2,960 for fines, effective August 22 to close in on the price gaps with Chhattisgarh, Karnataka and Goa.