Higher export duty prompts miners to look at pelletisation

Pellet production capacity is set to rise 75% by 2015 to 84 mtpa

Imposition of higher export duty on iron ore fines and zero duty on export of pellets has encouraged a large number of standalone miners and steel mills to set up Greenfield pellet plants and also expand existing capacities.

As a result of 30% duty on export of iron ore fines, the miners are rushing to set up pellet plants and the pelletisation capacity is set to increase 75% to 84 million tonnes in the country in the next three years.

Currently, the installed pellet making capacity in the country is 48 million tonnes and by end of December 2013, it is likely to touch 63 million tonnes.

“The imposition of 30% duty on export of iron ore has largely contributed towards increase in the pelletisation capacities in the country over the last two years. It is further expected that non-exemption of export duty on export of pellets will give impetus to setting up new pellet plants in the country by standalone miners,” a recent report of Parliament’s standing committee on coal and steel said.

The committee has also recommended to the steel ministry to take immediate steps to create sophisticated iron ore beneficiation facility followed by pelletisation so that lower quality of iron ore produced in the country is fully utilized by domestic plants.

To encourage beneficiation and pelletisation, import duty on plants has been reduced from 7.5% to 2.5% in the Budget for 2012-13. Besides, export duty on pellets has been reduced to zero.

Earlier there was a little incentive for iron ore producers to set up beneficiation and agglomeration plants due to attractive export market and huge cost of setting up these plants.

“Setting up of more pelletisation plants will also generate more and more employment opportunities and will generate more revenue in terms of value added products,” the standing committee report observed.

There 36 pellet plants are operating in the country with an average production rate of 52%.

“The capacity is likely to touch 63 million tonnes by December 2013. The total expected expansion and new plants together would add another 72 million tonnes pellet making capacity by 2016-17. This means the total pellet production capacity would be about 135 million tonnes per annum in 2016-17,” said Prakash Duvvuri, head of research, Ore Team, a mining and metal information website.

Another reason for miners to set up pellet plants is the attractive prices for pellets in the Chinese market, which are ruling at $158 per tonne for 65% Fe grade.

“The demand for pellets in China is good but the Indian exporters can only export pellets when the global prices are good and rupee stays low against the dollar. Once that advantage is lost, the exports will become unviable,” Duvvuri said.

Major pellet producers in India expected to be operating by end-2013 include Essar Steel’s 8 million tonne per annum (mtpa) plant in Andhra Pradesh, JSW’s 8 mtpa plant, Essar Steel’s 6 mtpa plant, Tata Steel’s 6 mtpa plant, JSPL’s 5 mtpa and Stemcor’s 4 mtpa plant among others.