Ex-India pellet prices have failed to react to the hardening of prices in China largely because local pellet producers have still been grappling with the impact of the recently imposed 45 percent export tax on consignments at ports or contracts already concluded against letters of credit, SteelOrbis has learned from trade and industry circles.
Ex-India pellet prices have been maintained at $150-155/mt CFR China, while sharp gains in raw material prices in China did not impact ex-India prices since neither buyers or sellers have ‘confidence’ in concluding fresh bookings at a time when there has been no clarity on whether tonnages at ports will be subject to the new levy.
The sources said that, if the tax was liable to be paid on existing contracts of tonnages at ports, pellet exporters would be looking at huge losses as payment terms had already been signed.
“The impact of the export tax will be limited in the current quarter (April-June) to only where shipments have not been completed. Going forward, the industry is still assessing its impact, but that there will be surplus in the domestic market is axiomatic. The question is how much of this volume can be sold in the domestic market,” a member of the Pellet Manufacturers’ Association of India (PMAI) said.
“The worst-case scenario of exports disappearing is very distinct. In China, the issue is of demand and not supply. Pellet demand increases in China when steel margins improve. But margins are not going to surge to the extent that buyers would be willing to absorb the export tax. Hence, the only alternative for local pellet producers will be to cut output, which we will see in the coming quarter,” he said.
Sources cited the example of pellet producer Godavari Ispat and Power Limited, which produces an estimated 3 million mt per year and whose exports account for as much as 35 percent of its production, and the question remains whether such producers can find new buyers.