Slide in iron ore prices to hurt exports from India, further slump seen

After hitting a five-year high of $121 a tonne in July, spot iron ore prices tanked to $93

Global iron ore prices entering the bearish zone has spelt bad tidings for Indian exports. After rocketing to a five-year high of $121 per tonne in July, spot iron ore prices plummeting to $93, causing panic among the country's iron  ore exporters.

With forecasts of a further slump, exports will anything but gain. Exports of iron ore had gained traction since the tailing dam burst at Vale's key mine in Brazil earlier in January spooked supplies, triggering a sharp escalation in prices. Shipments of lower grade material from India surged as China's steel mills showed greater appetite for sourcing iron ore of Indian origin.

“There are prophecies that international iron ore prices may tank up to $70 by the end of this calendar (2019). This price point will make our iron ore unviable and dissuade exports”, said an iron ore miner.

After the crisis at Vale's mine, iron ore exports from India spiked. The country closed 2018-19 with exports of 16.2 million tonnes (mt), overshooting iron ore imports of 12.6 mt.

“The 30 per cent export duty on 58 per cent Fe and higher grade iron ore make it less competitive in the seaborne market. If international prices for 62 per cent Fe fines slide to $ 70-80 levels, as was the case pre-January 2019 before the Vale dam disaster, then we see iron ore exports by domestic miners to decline going forward”, said Jayanta Roy, Senior Vice President & Group Head - Corporate Sector Ratings, ICRA Ltd. 

Stabilizing supplies have helped exert downward pressure on iron ore prices. Backed by the resumption of Vale's Brucatu iron ore mines in June, iron ore exports from Brazil have risen 17 per cent sequentially in July. The Brucatu mines have capacity to unearth 30 million tonnes each year.  Moreover, supplies from Australia are also building on after a tropical cyclone had disrupted operations of some mines in March.

That apart, downside risks to international iron ore prices also prevail because of anticipation of weaker Chinese steel production growth in second half (H2) of calendar 2019 following an escalation of US-China trade-tensions, a sharp depreciation of the Yuan (China's currency) and a corresponding decline in mill purchasing power.

“Inventories at Chinese ports has been steadily increasing in the past few weeks, and given the weaker steel demand outlook in H2 of CY2019, Chinese mills remain reluctant to book additional shipments, which could keep seaborne prices under check for the remainder of CY2019. Chinese mills imported 590.06 mt of iron ore in Jan-Jul 2019, down by 4.9 per cent year-on-year (y-o-y). However, in July 2019, imports increased to 91.02 mt, against 75.18 mt in June 2019, and 90.03 mt in July 2018. This indicates to a gradual improvement in seaborne supplies, which we believe to be a factor behind the correction in prices”, Roy added.