Iron ore supply disruptions spike demand for low-grade Indian fines

Iron ore fines of inferior grade accumulated at the mines heads in Odisha and Jharkhand are finding their way into the export markets amid the global supply turmoil created by the shutdown of a string of mines held by Brazil-based Vale, the world's largest iron ore miner.

Demand for lower grade iron ore fines (iron content of less than 58 per cent) had evaporated as Chinese steel mills showed a proclivity to buy higher grade ore or even pellets to feed into their blast furnaces. China's steelmakers were spurred by their government's decision to crack down on rising emissions.

However, the deepening iron ore deficit has swung the trade balance in favour of the Indian ore miners. The demand trigger for lower grade material might be a temporary phenomenon but it will help liquidate the enormous inventory in Odisha and Jharkhand for which there are no takers even in the domestic market, said an industry source.

“To overcome the iron ore deficit, China has of late shown a tendency to buy even the lower grade material from India. This augurs well for the piled up iron ore fines especially in the states of Odisha and Jharkhand. China was the largest buyer of Vale's iron ore and the supply crisis at the latter's mines has sparked a huge deficit. It is not known how long the buying spree for lower grade fines will continue”, the source added.

A major dam breach on January 25 this year at Vale's Corrego do Feijao mines in Brazil squeezed supplies, escalating iron ore prices to multi-year highs. A few days later, Vale announced the decommissioning of all its upstream tailing dams over the next three years, shunting out 40 million tonnes in supplies. Moreover, a court in Brazil, as a measure of safety, ordered the suspension of Vale's operations at Brucutu mines, creating a deficit of 30 million tonnes.

There is no duty levied on exports of iron ore with iron content less than 58 per cent. The higher grade ore exports are taxed at 30 per cent. Recently, state-owned trading giant MMTC Ltd had floated tenders for exports of lower grade iron ore to be shipped through the ports of Paradip, Gopalpur, Haldia and Visakhapatnam.

Revival in exports of lower grade iron ore fines is expected to ease the inventory at mine pit heads which are posing a serious ecological hazard. The phenomenon would also spur exports which are on a weak wicket since shipping higher grade iron ore was economically unviable because of the steep export tax of 30 per cent.

Iron ore stock at mines heads has been climbing owing to fragile demand. By the end of FY18, the iron ore stockpile made up primarily by lower grade had soared to over 150 million tonnes. Around 80 per cent of the inventory was contributed by Odisha, the largest producing state and Jharkhand.