A fresh bout of margin pressure is seen to be acting upon small to medium size standalone sponge iron producers. This is because of higher input costs and lower demand from steel producers. | |
| While several small plants are closing down, some mid-size plants are being offered for sale. |
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| "Margins of some standalone units have now moved into the negative territory now, from their boom time levels of 10-11 per cent," an industry player said. |
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| At least 200 plants "� with an installed capacity of up to 9 million tonne "� are currently facing acute margin pressures, and about 20 of them have been put up for sale. |
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| Having declined by Rs 500 in the past one month, sponge iron prices are currently quoting at Rs 11,000 a tonne. However, there has not been any price fall in prices of scrap "� a sponge iron substitute. |
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| "Sponge iron producers are being squeezed from both sides. Iron ore prices have doubled in the last one year. Electricity charges and freight rates have also gone up substantially. But, they are yet to percolate on sponge iron prices," an industry source said. |
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| Even survival had become a problem for standalone sponge iron players, he said, adding that companies with backward or forward integration, however, faced no real problem. |
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| The companies in the latter category were still making money as their costs of production were low "� between Rs 5,000 and Rs 10,000 a tonne depending upon the source of raw materials, technology used etc, the source said. |
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| Iron ore at Rs 3,500 a tonne, duty at 1.6 per cent, coal at Rs 3,000 a tonne, and conversion charges and others at roughly Rs 1,000 take the total cost of production beyond Rs 10,000 a tonne. |
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| Sources said half of sponge iron units survived on the "escape route" "� evading taxes, sourcing raw materials through hidden channels etc. Now, with the government tightening industry-specific norms to combat malpractice, these units were finding it tough to even survive, they added. |
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| Sources concurred that the price movement was beyond anybody's control. The prices would stabilise with the closure of small units and capacity expansion in backward and forward integration, they said. |
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| "In the era of liberalisation, non-competitive players go out of the market while competitive players do make money. Sponge iron producers, therefore, will have to come out with pelletisation units or iron ore mines if they have to go a long way in this business," sources added. |
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| Setting up of a pelletisation unit is, however, a costly affair "� a 0.6 million tonne unit entails an investment of Rs 100 crore , which is beyond the capital capacity of small units. |
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