New Duty Makes Iron Ore Pellet Export Unviable, Causing Prices to Plummet by 30%: Report

According to an ICRA report, the government's new 45 percent export duty on iron ore pellets last month has made export of the material unviable, and prices are likely to correct by up to 30 percent as a result. Effective May 22, the government imposed a 45 percent export duty on iron ore pellets, up from nil previously. The move was intended to discourage exports and, as a result, to slow price inflation in the domestic market.

As a result, merchant pellet players' contribution margins are expected to fall by Rs 1,000 per metric tonne from pre-duty levels, according to the report. “India exported more than 11 million tonnes of pellets in FY22, accounting for almost 15% of its overall pellet production,” said Jayanta Roy, senior vice-president and group head for corporate sector ratings at ICRA.

“With exports becoming unviable, industry asset utilisation will be adversely impacted, and domestic pellet prices would come under pressure going forward,” he said.

Pellets are a raw material input used to produce iron in a blast furnace, which is then used to produce steel. While integrated steelmakers produce the majority of iron ore pellet capacity in India for captive use, there are also significant merchant plants that produce them for sale to steelmakers in India and abroad. These include Brahmani River Pellets, the Rashmi Group, and the BSE-listed KIOCL Ltd.