Tata, Adhunik to benefit from sponge iron price rally

The price of the sponge iron has risen by a little over Rs 500 a tonne over a week

A rally in sponge iron prices should boost the earnings of big entities in the space, such as Tata Sponge Iron and Adhunik Metaliks.

The price of the intermediate steel product has risen by a little over Rs 500 a tonne over a week. Normally, the price rise for sponge iron happens in mid-September but the monsoon’s slowing has seen a rebound from the low base month of July, where prices of steel products were down by Rs 1,200-1,500 a tonne. And, the price sentiment is bullish, with the central government extending the minimum import price cover till October and long-steel producers, the major users of sponge iron, looking at restocking as the rainy season ends. Good demand is anticipated in October-December.

India is the world’s biggest producer of sponge iron. The country produced 17.9 million tonnes in 2015-16, with a little over 80 per cent made from the coal-based method. However, capacity utilisation was barely 37 per cent of the rated 48 mt.

D P Deshpande, managing director, Tata Sponge Iron, said: “I have little doubt that this price rally will continue beyond two to three weeks from now. Input costs have gone up and steel prices have not moved up commensurately. In any case, it will boost our short-term operating earnings. We are looking at Rs 1,200 a tonne (operating earnings) on this price hike. Sponge iron prices are now Rs 11,700-11,800 a tonne.”

“This price hike is an artificial one, triggered by shortfall in the domestic market, and I don’t see it continuing for long. But, the short-term hike will benefit bigger players like Tata Sponge and Adhunik,” said Amit Gupta, director at Atha Group, which makes sponge iron.