Pellet makers get ready to call shots

The imposition of a higher export duty on iron ore fines and none on pellets has spurred many stand-alone miners and steel mills to set up new pellet plants and expand existing capacities. Pelletisation capacity is set to increase 75 per cent to 84 million tonnes in the country in three years. The capacity is 48 million tonnes and, by December-end, is set to touch 63 million.

"The imposition of a 30 per cent duty on the export of iron ore fines has largely contributed to an increase in the pelletisation capacity over the last two years. It is expected that exemption of export duty on pellets will give an impetus to the setting up of new pellet plants by stand-alone miners," a recent report of Parliament's standing committee on coal and steel said.

The committee has also recommended to the steel ministry to create a sophisticated iron ore benefication facility followed by pelletisation so that lower quality of ore produced in the country is fully utilised by domestic plants. To encourage benefication and pelletisation, import duty on plants has been reduced from 7.5 per cent to 2.5 per cent in the Budget for 2012-13.

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

"Setting up of more pelletisation plants will also generate more employment and more revenue in terms of value-added products," the report observed.

There are 36 pellet plants operating in the country, with an average production rate of 52 per cent. "The total expected expansion and new plants would add 72-million-tonne pellet capacity by 2016-17. This means the total pellet capacity would be 135 million tonnes a year in 2016-17," said Prakash Duvvuri, head of research, Ore Team, a mining and metal information site.

Another reason for miners to set up pellet plants is the attractive prices in China, at $158 a tonne for 65 per cent Fe grade. "The demand for pellets in China is good but exporters can only export pellets when the global prices are good and the rupee stays low against the dollar. Once that advantage is lost, the exports will become unviable."

Major pellet producers in India expected to be operating by 2013-end are Essar Steel (eight-million-tonne-per-annum (mtpa) plant in Andhra Pradesh), JSW Steel (eight-mtpa plant), Essar Steel (six-mtpa plant), Tata Steel (six-mtpa plant), Jindal Steel Power Limited (five-mtpa plant) and Stemcor (four-mtpa plant).