Despite COVID-19, this entrepreneur is looking at a 70% jump in exports and 20% hike in prices

One of the raw material for which China has re-discovered its hunger, post the COVID-19 outbreak, is pellets. The pellets, made from iron ore, are used to manufacture sponge iron, which is further converted into steel.

Godawari Power & Ispat produces 2.1 million tonne (MT) of pellets a year.

Demand from China has been such that as markets opened in India, post the temporary closure during the initial part of the nationwide lockdown, prices of pellets had increased from their previous levels.

That surge was driven by China. In April, even as the country emerged after being closed for most parts since the start of the year because of COVID-19, steel production hit a new high. The country made up for 62 percent of the world's steel produced for the month, but its share was a shade less than 55 percent a year ago.

Agarwal wants to make the most of the demand from China. "In the last financial year, we exported 6 lakh tonne of pellets. This year, we plan to increase it to 10 lakh tonne," the founder added.

The company later clarified that the 70 percent jump in export is assuming that the COVID-19 pandemic situation will improve, "but not in overall volumes/turnover of the company. The sales mix of domestic and exports shall be adjusted accordingly depending on the market demand scenarios.  However, there will not be much difference in the overall sales volume of iron ore pellets."

Prices of pellets are expected to increase further. While the rate last year was about Rs 6,700 per tonne, it has now increased to Rs 7,000 a tonne. Agarwal expects this to increase to over Rs 8,000 by the end of the year.

Godawari Power & Ispat also sought to clarify on the prices. It said that the export realization has  increased from Rs 6,700 to Rs 7,000 PMT for the low-grade iron ore pellets. "We are planning to export high grade iron ore pellets from October 2020 onwards for which we are expecting higher sales price of about Rs 1000 per ton, that is Rs 7,000-Rs 8,000 per ton, provided  the supplies from Brazil remain tight," the company said a statement to Moneycontrol.

Godawari Power & Ispat produces two grades of pellets. One consists of high grade pellets that are used in-house in the manufacture of steel products for construction and infrastructure sectors. The second are low-grade pellets that are mainly exported.

"The sales mix is driven by multiple factors and is largely dependent on the pricing in the domestic and international markets. The company would also like to mention that given the dynamic nature of our business and its dependency on commodity prices it is difficult to quantify company’s profitability," it said.

Adding cushion to the company is its iron ore mines. While last year, the company had bought 30 percent of its iron ore requirement from the market, this year, the plan is to completely source this need from its  captive mines.

"This will help us reduce costs in a big way," Agrawal said.

Godawari Power & Ispat, which is headquartered in Raipur, has two iron ore mines in Chhattisgarh. Apart from pellets, it also manufactures sponge iron and operates a power plant.

The boost from additional exports of pellets will help the company improve upon its last year's performance. For the nine months ending December 31, Godawari Power & Ispat's net profit was down 29 percent from a year ago, even though revenue inched up by 3 percent to Rs 2,498 crore.

Not everyone though is happy about the company looking to increase its exports. And discontent comes from Agrawal's own neighbourhood.

Chhattisgarh Sponge Iron Manufacturers Association has asked for export duty to be imposed on pellets exports, in a bid to keep prices of the raw material low. But Agrawal, who is a member of the rival Chhattisgarh Sponge and Steel Manufacturers Association, is not perturbed.

"Even if only 85 percent of the pellet capacity is utilised this year, there will still be surplus of the raw material. There is no way a shortage could happen, as other are claiming," the veteran entrepreneur said.