Why is global demand for Indian iron ore exploding? MC Explains

India’s exports of iron ore fines and lump hit a three-year high of 36.5 million tonne (mt) in FY24 compared with around 15 mt in FY23, an increase of about 145 percent year on year, according to data collected by market analytics firm BigMint. Exports of iron ore pellets, likewise, increased nearly 80 percent y-o-y to 11.3 mt in FY24 as against 6.3 mt in FY23, data show. According to reports, over 90 percent of the exports are made to China followed by Malaysia and Qatar.

But why is there a spike in iron exports, Moneycontrol explains:

Why is there an increased Chinese appetite for Indian iron ore?

China’s iron ore imports saw an 8.1 percent increase in the initial two months of 2024, according to reports, compared to the previous year, attributed to steelmakers replenishing stocks to fulfil production requirements during and after the Lunar New Year holiday. The surge in Indian iron ore fines exports to China was driven by robust pre-Chinese New Year restocking and encouraging economic signals in China. Additionally, the elevated costs associated with high-grade iron ore imports from alternative sources, coupled with narrow profit margins for Chinese mills, raised the demand for India’s competitively priced lower-grade ore.

What’s happening with the domestic iron ore demand?

India’s iron ore production, a key steel making ingredient, comprises both low-grade and high-grade ores, but the country has significant reserves of low-grade iron ore. Low-grade iron ore typically contains a lower percentage of iron content and higher levels of impurities compared to high-grade ores, leading steel companies to opt for higher-grade ores, which have over 62 percent Fe (the chemical sign of iron).

MC Explains

MC Explains

How did the removal of duty boost exports?

The elimination of the 50 percent export duty on iron ore and 45 percent duty on pellets, along with the cessation of the 15 percent levy on finished steel exports in November 2022, significantly boosted export activities. The imposition of these levies had rendered exports economically unfeasible. There was a surge in shipments from India immediately after their removal. China emerged as the primary destination for approximately 90 percent of total exports, underscoring the consistent demand for low-grade Indian iron ore from China, despite the constrained profit margins of Chinese steel manufacturers, which have remained stable over the years.

What are the production levels of Indian iron ore?

India achieved a record-high iron ore production of approximately 280 mt in the recently concluded fiscal year, a notable 10 percent jump y-o-y. With the rise in domestic iron ore production, its availability for exports has also expanded.