Scrap import to go up 25% in FY13

Steel mills' dependence rises, with estimated gap of 11 mt between domestic demand and supply

Steel companies' reliance on imported ferrous scrap has increased in recent years due to a shortage of high-grade iron ore (lumps) and their avoidance of low-grade ore (fines), to save on additional conversion cost.

Data compiled by the Metal Recycling Association of India (MRAI) forecasts India's ferrous scrap import to set a record at 7.5 million tonnes in 2012-13, almost 25 per cent more from the previous year and a sharp 50 per cent jump from 2010-11.

"The energy-intensive steel industry might save up to 74 per cent of electricity by using ferrous scrap as a raw material and also save natural resources, especially when the price of ferrous scrap works out cheaper for conversion," said Zain Nathani, vice-president of MRAI.

The Sponge Iron Manufacturers' Association says ferrous scrap import will record eight mt this year, with rising demand from steel mills. Between April 2012 and January 2013, the import shot up to almost seven mt as against 4.9 mt in the same period of the previous financial year.

While the primary steel producers with iron ore mining support continue to operate with captive raw material linkage, others bank largely upon the open market for ore. With the shortage of ore, a majority of sponge iron producers with no mining linkage has been affected badly. They have turned to procuring additional ferrous scrap and to also change the product mix to remain competitive. Also, a majority of sponge iron units operate on merchant power, generally entailing higher costs.

Despite a Supreme Court order to government-owned NMDC to expand monthly iron ore output to at least one mt, it has managed only 700,000-800,000 tonnes a month. In addition, the partial resumption of mining in Karnataka is set to produce about 10 mt. Another four mt of dumps would be available for processing, resulting in overall ore supply of 24 mt. Since steel mills in Karnataka require around 35 mt to run their plants fully, the industry is set to see a deficit of around 11 mt in 2013-14, said Jayanta Roy, senior vice-president (corporate sector), Icra.

This deficit is set to be bridged primarily by imported steel scrap. Consequently, ferrous scrap import is set to hit a new record this year. The mining ban in Goa is unlikely to impact domestic steel mills, as the state's mineral output was primarily export-oriented.

Meanwhile, plans for capacity additions by independent steel mills might face intense heat, with the shortage of both steel scrap and iron ore. The ministry of steel has envisaged at least 24 mt of expansion in capacity by 2017-18, entailing an investment of Rs 100,000 crore. India's total steel making capacity, including secondary producers, at the end of 2011-12 was 89.3 mt a year and is projected to expand to 200 mt a year by 2020.