Sponge iron units pin hope on new projects

This is likely only once a stable government comes to power in Delhi

The domestic sponge iron industry, reeling under high input costs and poor demand, hopes that a stable government at the Centre would take up pending infrastructure projects, which would spur growth in the sector.  

According to experts, in the last three-four years, production has come down substantially, as about 50 per cent of sponge iron units are closed. Even in the existing units, the production has come down to half its original capacity. Industry officials said only encouraging policy rollout by the new government could help the domestic sponge iron producers.

The sponge iron is used by the steel industry and finds application in both flat as well as long steel product segments. It is also used in a big way in infrastructure projects and construction industry.  India is one of the largest producers of sponge iron in the world. According to Sponge Iron Manufacturers Association data, India has a total installed capacity of 37 million tonnes.

“We are banking on large long-term projects to be announced by the new government,” said B L Biyani, executive director of Mohit Steel Industries. “This will help the sponge iron demand pick up and revive the industry,” he added. Goa-based Mohit Steel manufactures mild steel ingots, which sources sponge iron from its captive plant in Karnataka.

The same sentiments were echoed by other sponge iron producers, too. “Once a stable government comes to power, the sponge iron market is expected to pick up, as the government is expected to initiate policies that will perk up steel demand,” said a senior official from Kolkata-based Jai Balaji Industries.

“A lot depends on sale of finished steel in the market. Until the government does not bring in some new policy to push up the demand for finished steel, we cannot see an upward movement,” said an industry official.

Most industry officials were of the view that the current consumption pattern for sponge iron though weak, overall demand is largely uneven and highly region-based. For instance, usage of sponge iron is higher by units in the central and eastern India, while units in the north are using a combination of sponge iron and imported scrap steel to make semi finished steel products.

“Even though imported scrap is expensive compared to sponge iron, plants are preferring to use it since the percentage of yield works out to be higher, which eventually nullifies the impact of high cost of imported scrap,” said Nirmal Kumar Agarwal, director with Adhunik Metaliks.

However, most sponge iron producers were unanimous that once requirement for large long-term construction projects comes in from the new government, the steel industry will prefer domestically produced sponge iron to imported scrap steel.

“There are several issues in relying on imported scrap such as freight charges, dollar fluctuations and on-time delivery. Once demand picks up for finished steel in the market, demand will surely be more for domestically produced sponge iron than the imported scrap, as it will be more cost-effective and all other issues will be ruled out,” said Agarwal.

Although sponge iron producers are banking on the new government, not many are optimistic about the revival of the shut units.

“Capacity utilisation of the running sponge plants will definitely go up once a new government brings in new project announcements but the ones that are shut will take a while to start,” said Agarwal.

“The shut units will take some time to come up. There will have to be a very strong and continuous demand for these shut down units to start again,” said an official with Jai Balaji Industries.

“Currently, there is some shortage in the domestic sponge iron ore market, mainly due to closure of several plants in the last two-three years and not because the demand is strong,” said a senior official with Bihar Sponge Iron, whose coal-based unit was shut since August for lack of raw material. “Due to this, prices of sponge iron have also moved up by about Rs 1,500-2,000 per tonne. It is important to see how long closure of these units will support the market,” the official added.