Stemcor’s Iron Ore Output Cuts Lay India’s Pellet Battle Bare

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The ongoing controversy around iron ore pellets in India begs the question (and only a question, since no one knows an answer quite yet) – so which is it?

In late January this year, the Indian government had imposed a 5 percent export duty on iron ore pellets, a raw material used in steelmaking, as previously reported by MetalMiner.

Since then, a verbal tussle has sent the temperature soaring, becoming a steel-versus-pellet makers battle. Now, to stoke the fire, the Commerce Ministry has asked the Finance Ministry to withdraw the tax, saying it was levied on a “misplaced” perception.

Steelmakers have for some time been crying themselves hoarse that many pellet makers were actually disguising iron ore and exporting them as pellets, a charge refuted by the latter. As it is, because of legal cases, the mining of iron ore has dwindled in the last two years, forcing steel manufacturers to import the crucial raw material, leaving many steelmakers to fall back heavily on the use of pellets.

FREE Download: The Monthly MMI® Report – covering Steel/Iron Ore markets.

So this means there should be a robust domestic market, right?

In keeping with these sentiments, the government had imposed the 5 percent tax. Up until now, the story was fine. So, then, how does one explain remarks by those making iron ore pellets that business, contrary to the claims made by the steel manufacturers, was actually down?

Take the case of Stemcor, for example.

A report in Live Mint stated the British steel trader and iron ore producer may cut iron ore pellet output at its plant in India, for – get this – “weak local demand,” and the recently introduced tax on exports of iron from India.

The majority-owned-by-Stemcor Brahmani River Pellets Ltd operates a 4-million-ton-per-year pelletizing plant in the Indian state of Odisha. It was commissioned last year and is currently producing at 50 percent of its capacity.

Another question that begs for an answer: what is the truth? Is there indeed a shortage of pellets (steelmakers’ version) or is domestic demand really not as hot as pellet makers claim?

iA report in The Indian Express quoted the Commerce Ministry secretary as saying the protests by pellet manufacturers merit consideration, and that the export duty needs to be rolled back, allowing them to export to recoup losses from low domestic intake.

In a letter to his Finance Ministry counterpart, the Commerce Secretary wrote that any argument that the domestic steel industry was being starved of pellets was misplaced since surplus capacity existed in the country. Neither is pelletization capacity under stress, he added.

Reacting extremely strongly on the Commerce Ministry note, Indian steelmaker JSW Steel instead asked the Indian government to increase the tax to 30 percent – the level imposed on iron ore fines.

JSW Steel is one of the many companies that have long been complaining of a shortage of iron ore, alleging that Indian producers were exporting the ore in the form of pellets.

FREE Download: The Monthly MMI® Report – covering Steel/Iron Ore markets.

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