Chinese Steel Mills Trigger Growth in Indian Iron Ore Supplies

(Bloomberg) -- As China's push for clear skies sends the world's biggest steel industry hunting for better quality iron ore, suppliers in India are ramping up capacity to cater to the growing export market, according to the local unit of Moody's Investors Service.

Indian producers of iron ore pellets -- a less polluting form of the mineral that can be fed directly into furnaces -- are set to boost their production capability by over 15 percent to more than 100 million metric tons in the next two years, as rising shipments to China augment demand from a buoyant domestic steel industry, Priyesh Ruparelia, an assistant vice president at ICRA Ltd., said by phone from Mumbai this week.

Mills are increasingly interested in pellets “given the Chinese government's intent to curtail production of polluting industries,” he said. “China's recently announced stimulus to prop up infrastructure demand is likely to aid steel production growth, which in turn is likely to keep pellet prices buoyant.”

The South Asian nation is likely to export close to 9 million tons of pellets for a third straight year in the period to March, about two-thirds of that to China, he said.

Chinese pellet prices are currently trading around $150 a ton, including cost and freight, compared to sub-$100 levels in the April-June quarter last year, Ruparelia said. A depreciation in the rupee is also benefiting the companies that export a significant proportion of their production, such as Jindal Steel & Power Ltd., Essar Steel India Ltd. and Brahmani River Pellets Ltd., he said.

Iron Ore Lumps, Pellets in Vogue as China Scrubs Nasty Skies

Iron ore's most common form is fines -- coarse grains that need to be sintered before use. Pellets are cleaner and more efficient for mills because they've already been processed into small beans that can be used directly.

India's own demand is surging, too, as steel mills embark on expansions to meet the government's target of tripling capacity by 2030, which would cement its ranking as the world's second biggest steelmaker.

To contact the reporter on this story: Swansy Afonso in Mumbai at safonso2@bloomberg.net

To contact the editors responsible for this story: Phoebe Sedgman at psedgman2@bloomberg.net, Jason Rogers, Alpana Sarma

©2018 Bloomberg L.P.