China’s iron ore demand poses problem for some Indian steelmakers

China’s increased appetite for iron ore has become a problem for neighbor India.
In the first four months of 2021, ore exports from India increased by 66% to 22.42 million tons (MT). As much as 90% of this went to China, according to Business Today.
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India’s iron ore problem

India iron ore barge
natmat/Adobe Stock

China is the largest consumer of iron ore. The country imports about 70% of the world’s production. Last year, it imported a record 1.17 billion tons.
The spike in iron ore exports is becoming a problem for Indian steelmakers, as they are struggling to get this critical raw material. Some have now demanded that the government ban iron ore exports from India.

As it is, India’s iron ore production fell sharply because of COVID-19 by about 44 million tons to 202 million tons in 2020-21 against 246 million tons the previous year.
The spike in exports had added to this, creating an overall short supply of around 70 million tons.
Bigger steelmakers, like Tata Steel and JSW Steel, who have captive iron ore mines, are not very affected by the iron ore export situation. However, smaller steel players have witnessed huge losses.

Rising prices

Tata Steel CEO and Managing Director T V Narendran recently said in an interview that the rising prices of steel would not affect the demand in the domestic market. He added that current Indian steel prices are higher if compared with rates a few months back but lower in comparison to international markets.
Last week, India’s largest iron ore miner NMDC hiked the prices of lump ore by about US $100 (Rs 700) per ton.
So how long will China’s bull run last? Analysts have different opinions. Some say with China’s steel production hitting new highs almost every other month, the trend may continue till the end of 2021. Others expect it to end in the next quarter.
The price of iron ore with 62% iron content went up to US $214.99 a ton cost and freight at the delivery port of Tianjin, China. Prices for iron ore with 63.5% iron content have hit US $208.50 a ton, cost and freight Tianjin.

China’s steel production

A report by the National Bureau of Statistics pegged China’s steel production last month at a record 97.85 million tons. Through April, China’s steel production totaled 375 million tons, up by 16% compared with the year-ago period.
The World Steel Organization reported in April that China produced 94 million tons of steel in March, up 19.1% year over year. India’s production rose by nearly 24% to 10 million tons.
US credit rating agency Fitch Solutions forecasts room for further upward movement, even despite prices already rising to record highs. Prices would stabilize from the second half of this year, it added.
One more reason for the surge in iron ore prices vis-a-vis China is the risk of iron ore supply disruption following the suspension of economic dialogue between China and Australia. Australian exports make up over 60% of total Chinese iron ore purchases annually.
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