Record international iron ore prices spur lower grade exports from India

At over $100 a tonne, the global price of iron ore’s higher grades is now the highest in five years, kindling hope of revival in export of lower grades of ore from India. Export of iron ore of up to 58 per cent ferrous content (58-Fe) attracts zero duty. Traders say once the price of this baser grade of ore breaches $70 a tonne, export becomes viable.

Odisha alone has in excess of 100 million tonnes of inferior grade iron ore accumulated at mine heads; this ore lacks takers in India. More such inventory is piling up in Jharkhand; the two states account for over 80 per cent of the country’s accumulated iron ore stockpile.

Despite the zero-duty incentive, export of lower grade material did not pick up because of flagging demand abroad, especially China. Steel mills in that country are buying more of enriched ore and even pellets, as local and national governments there have launched a crackdown on polluting industries.

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Now, however, a supply disruption in Brazil and Australia, and plunging inventories at China’s ports, have goaded steel makers to source more ore. The lower grade ore is now $85 a tonne and the higher grade (65 per cent Fe) is $115. The futures price of the benchmark 62-Fe grade soared to $103 at China’s Dalian Commodity Exchange.

“Over three months, demand for lower grade iron ore has witnessed an upswing, after mine disruptions in Brazil and Australia. As international prices flare, we expect the momentum to sustain. There is immense stock in the domestic market and this needs to be liquidated,” said a mining industry source.

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In 2018-19, India became a net importer of iron ore. Inward shipment rose 43 per cent to 12.3 million tonnes (mt) as steel makers preferred to source higher grade ore from abroad. Iron ore export from the country fell 56 per cent to 6.9 mt, owing to a mining ban clamped in Goa by the Supreme Court, depressed seaborne prices and a 30 per cent export duty on higher grade ore.

Analysts are now betting that the benchmark Fe grade ore fines will rise in price to $110 a tonne, as Chinese steel makers aiming to ramp up output will be keen to replenish stock. More, simmering trade tensions between the US and China are expected to buoy prices.

The global ore supply crunch is unlikely to ease, with 40 mt of supplies choked after breaches at tailing dams of Brazil-based Vale, the world’s largest iron ore miner. The tailing dam bursts in late January at Vale’s mines in Brazil had sparked turmoil in global supplies.