Pellet prices in the domestic markets are expected to crash steeply on oversupply concerns. Every since the imposition of 45 per cent levy on exports from May 2021, the shipments have become unviable, thereby flooding the domestic market. 

India exported over 11 million tonnes of pellets last fiscal, accounting almost 15 per cent of its overall production. Consequently, the contribution margins of merchant pellet players are expected to decline by ₹1,000 a tonne from the pre-duty levels.

Jayanta Roy, Senior Vice-President, ICRA said with exports becoming unviable, industry asset utilisation will be adversely impacted and domestic prices would come under pressure, going forward.

Weak demand

The domestic pellet production is expected to drop by 10 per cent this fiscal on muted demand, and is unlikely to fully absorb the supplies meant for the export market, he added.

To impact iron ore demand

The dip in pellet exports would impact the iron ore demand and exert pressure on prices, as close to 40 per cent of the iron ore fines produced last fiscal was consumed by the pellet producers.

Prices of iron ore fines have already fallen by 35 per cent from the pre-duty level till June 22. Though a positive development for the pellet players, the steep fall in prices would compress their gross contribution levels.

Ukraine, the second-largest pellet exporter globally after Brazil, had halted supplies in February and March against 3.1 mt in the same period last year. India and Ukraine together account for 20 per cent of total seaborne trade last fiscal.

Supply-side shocks from these two countries are expected to result in a major disruption in global pellet trade. This could support seaborne pellet prices, going forward, and part-alleviate the pain of domestic merchant pellet plants.