India May Step Up Pellet Sales to Fill Supply Gap From Vale Cuts

(Bloomberg) -- India's pellet exports are expected to rise as buyers seek alternative sources of iron ore following output cuts by Vale SA after a deadly dam breach, according to the local arm of Fitch Ratings Ltd.

Overseas sales may rise as much as 20 percent in 2019 from about 9 million metric tons last year as countries such as China, Japan and South Korea that depend on Brazil will now source pellets from India, according to Rohit Sadaka, associate director at India Ratings and Research Ltd.

“Exports will sustain around these levels in the near term as there is a definite short supply because of the closure of iron ore mines and supplies from Brazil,” he said in an interview. “India remains a key supplier for pellets to China.”

Pellet exports from India surged about 1,200 percent in two years to rise to 9.3 million tons in the year ended March 2018 as China's push for clear skies sent it hunting for better quality iron ore. Pellets-- a less polluting form of the material -- are iron ore fines that have been processed into small beans, likened by one U.S. producer to resembling M&M chocolates. Vale's decision to cut supply by as much as 70 million tons following the dam burst in January, although it's said some of that decline can be made up, will add further impetus to the South Asian country's exports.

Local companies such as Jindal Steel & Power Ltd. and Essar Steel India Ltd. are set to export close to 9 million tons for a third straight year, more than two-thirds to China, after shipping minimal volumes in the past, ICRA Ltd. said in November. Pellet production capacity in the country is set to grow by over 15 percent to more than 100 million tons in the next two years to feed growing appetite in the local and overseas markets, it said.

Prices for Indian pellets have climbed about $15 in the past month to hover around $110-$115 a ton, free on board, because of the Vale closure and will sustain around these levels in the near-term, Sadaka said.

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, Alpana Sarma, Jake Lloyd-Smith

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