Nepal And Bangladesh Driving India's Sponge Iron Exports

India’s Sponge Iron (Direct Reduced Iron or DRI) exports have continued their upward trajectory, experiencing a surge of over 5% month-on-month in August 2023. Exports resurgence can be attributed to the robust demand from neighbouring nations, particularly Nepal and Bangladesh which heavily rely on India for their Sponge Iron procurement needs.

The growth in exports for August can be primarily attributed to the robust demand from Bangladesh and Nepal. Bangladesh’s Sponge Iron imports surged to approximately 46,000 tons in August, compared to 35,000 tons in July 2023. Meanwhile, Nepal, which ranks as the top buyer of Indian Sponge Iron, saw its imports decline slightly, from 83,000 tons in July 2023 to 75,000 tons in August 2023.

Key Drivers

• Nepal’s Melting Capacities Boost Indian Exports: The burgeoning melting capacities in Nepal have been a significant driving force behind India’s flourishing Sponge Iron exports. As Nepal steadily ramps up its Steel manufacturing capabilities, India has become a crucial source of Sponge Iron, a primary ingredient in Steel production. Pre-COVID-19 (in 2018-2019) Nepal’s melting capacity was approximately 0.5-0.6 million tons. However, this capacity has quadrupled, reaching 2-2.5 million tons.

• Bangladesh’s Mills Adapt To Rising Prices: The soaring prices of Ferrous Scrap, combined with certain challenges related to Letters of Credit (LC) issuance for bulk Ferrous Scrap imports have prompted Bangladeshi Steel mills to enhance their Sponge Iron procurement. This strategy allows them to meet their domestic Steel demand and sustain their operations effectively.

Current Scenario

In August 2023, India’s Sponge Iron exports reached an impressive 1.32 lakh tons, marking a significant increase of 5.4% compared to the exports of 1.26 lakh tons in July 2023. This achievement represents a year-on-year growth of 52.5%, as August 2022 saw exports at a mere 87,000 tons.

January To August 2023: A Year Of Exceptional Growth

In the first eight months of 2023, India’s Sponge Iron exports reached a remarkable 9.5 lakh tons, reflecting a substantial 35% increase compared to 2022 when exports amounted to about 7 lakh tons. This impressive growth underscores the pivotal role played by neighbouring nations in supporting India’s Sponge Iron industry.

Market Outlook

India’s Sponge Iron exports are poised for significant growth, potentially reaching 13 to 15 lakh tons in 2023, a substantial increase from 10 lakh tons in 2022. Nepal’s expanding demand and melting capacities are key drivers. India’s Sponge Iron exports to Nepal from January to August 2023 already reached 6.1 lakh tons and are expected to approach 10 lakh tons by year-end. Nepal’s focus on boosting domestic Steel production and backward integration in its Steel mills indicates further growth potential in Steel production and imports, including Sponge Iron, as operational capacity currently stands at 30-40%.

OFB’s Insight

As Nepal and Bangladesh continue to expand their Steel manufacturing capacities, India’s Sponge Iron industry is poised to further flourish, fostering economic ties and reinforcing its role as a vital supplier in the regional Steel market.