Cheaper pellet offers from China worry domestic makers

Embattled pellet makers could be in for a cold winter with offer price of Chinese imports falling by $4 a tonne last week to $69 a tonne.

In the domestic market, pellet manufacturers have been forced to sell at lower than production cost to counter the surge in Chinese imports. Pellets made within the country were sold in the range of Rs 3700-4500 a tonne, depending on the location where it was produced.

Pellet, an intermediate product in steel making, competes with calibrated lump ore in the domestic product. But with miners slashing prices of lumps, buyers were cautious on heavy buying of pellets, leading to increasing inventory level of the material. Lumpy ore prices were hovering around Rs 2600 a tonne, significantly lower than pellet rates.

 

While export was a viable option for shore-based manufacturers like Essar Steel and KIOCL Ltd, it had turned less remunerative since offer price for Indian exporters has recently gone down by $3 a tonne to $57. Besides this, the government's reluctance to lift 5% export duty on pellets was weighing on exporters.

"Pellet exports from the country have almost stopped in the past two months. Despite this, the government is continuing its export duty. Pellet makers are incurring cash losses as they are faced to sell below their production cost in the face of cheaper imports from China. The government should consider imposition of import duty on pellets", said N D Rao, president, Pellet Manufacturers' Association of India (PMAI).

Of late, merchant miners in Odisha have hiked iron ore fines prices by Rs 200 per tonne. The hike would raise cost of pellet production from Rs 4148 to Rs 4372 a tonne, an increase of 5.4%. Reeling under a spate of cheaper imports from China, pellet makers are forced to sell pellets at Rs 3700 per tonne, incurring heavy losses. The latest hike will only aggravate losses for the pellet makers.

Against the nationwide installed capacity of 83 million tonne per annum (mtpa), pellet manufacturers were operating at barely 30-35% of their rated capacity. Apart from high cost of iron ore fines, lukewarm demand for pellets in the domestic market has shrunk capacities of pellet plants.