(Bloomberg) -- Indian iron ore exports have surged this year as steel mills, mainly in the biggest buyer China, switched to lower-grade, cheaper feed in the face of dwindling profits.

Combined outbound shipments of iron ore and pellets from the South Asian nation more than doubled in the first eight months of 2023 to almost 28 million tons from a year earlier, according to researcher and rating agency ICRA Ltd., far surpassing the total exports of 2021 and 2022. India will continue to sell about 3 million tons a month to global markets for rest of the year, CRU Group said.

“Chinese mills prefer cheaper Indian iron ore to reduce their input costs when steel margins are low,” said Lalit Ladkat, an analyst at CRU. Indian ore is currently being offered at around $70 a ton, free-on-board, he said. 

The steelmaking ingredient is currently trading near $115 a ton on the Singapore exchange, the global benchmark.

The increased inflows from India will help shave some costs for Chinese mills that are maintaining production despite the country’s economic slowdown. The steel industry has been hit hard, with profits at ferrous metals producers dropping 91% over the first seven months of the year. Iron ore prices have risen 20% in the past year.

These purchases are “opportunistic buying” by Chinese mills which generally lean toward purchases of lower-grade ore during periods of subdued mill margins, according to ICRA’s Vice President for Corporate Ratings Priyesh Ruparelia. Greater availability of railway rakes to move the ore to ports also aided shipments, he said.

Exports are also being bolstered by the Indian government removing a hefty export tax it had imposed last year to curb a rise in local steel prices. Foreign sales bounced back rapidly thereafter, with tonnages in 2023 already exceeding last year’s volumes by over 40%, according to ICRA.

On the production side, this year’s lackluster monsoon season, which is typically a lean period for iron ore extraction in India, led to increased output, resulting in a surplus in the local market and boosting exports, according to Ladkat. India’s iron ore production is forecast to grow as much as 10% this financial year ending March to 275 million tons, outpacing a rise in local demand, he said.

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