Forget the Ban on Iron Ore Fines – India Goes for Pellets

In an attempt to earn higher profits, iron ore miners in the south Indian state of Karnataka new seek new opportunities for exports, this time in the form of pellets according to the Business Standard.

As the Indian federal government has waived the entire 15 per cent duty on export of iron ore pellets, not surprisingly, many miners have begun to consider the possibility of diversifying into the manufacturing and export of pellets. The news story suggests that domestic steel plants also face supply problems of iron ore lumps even as some steel manufacturers have started buying pellets from overseas sources of supply.

Until last year, Karnataka, a leading state for steel and iron ore miners had led India to an iron ore surplus only to have that lead now reversed. Steel mills and iron ore miners in Karnataka state as well as in the other parts of the country, not only face a shortage of iron ore but they have also suffered from lost profits. As a result, steel mills and iron ore miners have pursued other options to increase their profits. The primary method obtaining profits involves making and exporting pellets.

Reports suggest that the production of iron ore in key Indian states has declined and the country has produced only 208 million tons of iron ore in 2010-11 compared with 218.5 million tons in 2009-10. Subsequently, India has also registered a decrease in exports of iron ore. India, the third-largest global exporter of iron ore in the world, had exported 117.3 million tons in 2009-10. The exports had dipped by over 36 percent to 56 million tons in the April-February period last fiscal year against the prior year.

The shortage of iron ore came as a result of a decision by the Supreme Court of India last August to ban the illegal mining activities in the southern state of Karnataka. The Court had banned mining operations in the state following the recommendations of the Central Empowered Committee. However, in April of this year, the court partially lifted the ban and some believe that privately owned iron ore miners in Karnataka state will likely resume operations by July 2012. The southern state of Karnataka accounts for a quarter of India’s iron ore output. The state produces 16 million tons of iron and steel in a year, or a little less than 25 percent of the country’s total production. Regarding pellets, Karnataka state currently contributes about 36 per cent of the national production of pellets.

Pellet production capacity in India will likely reach 70 million tons (mt) this year and 90 million mt by 2014. Pellet capacity has increased both from green field and brown field projects undertaken by existing pellet plants and integrated steel mills. Available figures suggest that global pellet production last year hit  400 million mt and in 2010, 388 million mt. According to the Business Standard seven pellet-making plants operate in Karnataka state with an installed capacity of 15.4 million mt. India’s export of pellets in 2010 stood at 3.7 million mt. However, export of pellets from India will likely increase considerably with the waiver of duty on the export of iron ore pellets.

Market observers like the notion of zero duty on pellet exports because it will motivate more companies to set up plants in the country. Some now believe that companies will look to set up bigger pellet plants to sell raw materials internationally.


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