<p>With the availability of iron ore remaining low, the Rs 65,000-crore sponge iron industry is moving towards consolidation. Sponge iron, also called Direct Reduced Iron (DRI), is used in the manufacture of steel. India is the world’s largest producer, accounting for 43 per cent of global production.
The problem in the supply of iron ore is a sequel to the central government’s pressure to stop illegal mining in Karnataka, Odisha and Goa. Large companies with assured supply of ore, the raw material, either through captive mining leases or long-term contracts with mining companies, are scouting for acquisition opportunities of small and mid-size sponge iron units. Established companies have already started acquiring smaller ones with definite linkages to raw material blocks.
Data compiled by the Sponge Iron Manufacturers Association, the apex trade body, showed the industry has 350 units with installed annual production capacity of 34.9 million tonnes. During 2010-11, capacity utilisation was 64-67 per cent. Of that, nearly 70 fairly large-scale units, comprising around 75 per cent of the overall capacity, are looking for acquisition opportunities.
“Raw material security has become a major concern for the domestic sponge iron industry. Be it coal or iron ore, the sponge iron units with raw material backing are high on demand and a preferred target for acquiring companies in this sector,” said Amitabh Mudgal, senior vice-president, Monnet Ispat & Energy Ltd, one of the largest producers.
DRI is produced using either coal or natural gas. Since non-coking coal is easily available in India, the sector depends largely on coal-based sponge iron. The raw materials for sponge iron are non-coking coal, iron ore and dolomite, fed into a kiln. The coal burns at a very high temperature and the carbon in the coal reduces the iron ore into metallic iron. The mixture is cooled by spraying water and the iron is segregated using a magnetic separator. This reduced iron can then be converted into steel in a furnace.
Every tonne of DRI uses about 1.7 tonnes of iron ore, 1.5 tonnes coal, 0.05 tonnes dolomite and two tonnes water. The production of a tonne of DRI, in turn, generates about two tonnes of carbon dioxide, 0.25 tonnes dust, 0.3 tonnes coal char and 0.02 tonnes sulphur dioxide and water vapour. The gas emissions from the kilns impact air quality. The solid waste, comprising char, lime, iron dust and ash is dumped in the open.
Concerns over the pollution sponge iron factories cause seem to have taken a back seat, as increase in demand for steel and scarcity of coking coal (needed for blast furnaces to make steel) drives production. The sector has grown by leaps and bounds since 2002. Its capacity increased 267 per cent between 2003 and 2009, from 10 mt to 36.7 mt. The new factories are almost entirely coal-based. The growth in production, however, has not been commensurate with the increased capacity. From 12.53 mt in 2004-05, production increased to 20 mt in 2008-09.
Meanwhile, three major states with clusters of sponge iron units — Andhra Pradesh, Punjab and Chhattisgarh — have raised power supply rates by Rs 0.80 per unit, resulting in steel making becoming costlier by Rs 1,000 a tonne. A four-five per cent rise in iron ore prices by NMDC Ltd has also raised the cost of steel production by Rs 500 a tonne. And, the price of sponge iron has declined by five per cent in the past month, to Rs 23,000–23,500 a tonne, thereby creating a margin pressure on producing companies, said an analyst.