Sponge iron prices fall on cheaper raw materials

Sponge iron prices have fallen five per cent so far this month, owing to a steep fall in the cost of production. This follows a decline in the cost of raw materials, including iron ore and coking coal.

Sponge iron is being quoted at Rs 21,000 a tonne, against Rs 22,000 a tonne in the beginning of this month. Traders believe the commodity is partly compensating the shortage of raw materials for steel mills. Shortage of iron ore, however, has capped the fall in sponge iron prices.

“Sponge iron prices fell five per cent this month, after moving up marginally in September, owing to a proportionate fall in raw material prices,” said Amitabh Mudgal, vice-president (marketing and corporate affairs), Monnet Ispat.

Prices of iron ore have been volatile this month. After hitting $84.17 a tonne (free-on-board China), it fell to $78.05 a tonne on Saturday. The raw material for steelmaking was quoted at $80.48 a tonne in the beginning of October. Similarly, coking coal (at the benchmark Richard Bay) was quoted at $64.90 a tonne on Saturday, a fall of $2.16 a tonne compared with $67.90 a tonne in the beginning of the month.

Sponge iron is produced using steel scrap and iron ore. Depending upon availability and viability, manufacturers swap iron ore with scrap and vice versa. As such, the price of steel scrap has also fallen from $360-370 a tonne at the end of September to $340-350 a tonne.

 

“Weak demand prevails across the steel and raw material sectors. With the infrastructure sector yet to pick up, steel mills are working overtime to keep margins intact,” said a senior official at one of India’s largest sponge iron-producing mills.

Data compiled by the Sponge Iron Manufacturers’ Association showed a three per cent fall in India’s overall sponge iron output at 18.11 million tonnes (mt) in 2013-14, against 18.67 mt in 2012-13. Indicating weak demand, overall capacity utilisation stood at 48 per cent, compared with about 50 per cent in 2012-13.

Meanwhile, sponge iron producers have stepped up project implementation, amid hopes of a revival in demand from steel mills. Data compiled by the Centre for Monitoring Indian Economy showed projects worth Rs 2,650 crore, with a combined capacity of 4.4 mt, were scheduled to be completed during 2014-2016, raising the overall sponge iron installed production capacity to 49.4 mt by March 2016.

In 2013-14, projects with a capacity of only 70,000 tonnes were implemented, owing to weak demand from steel mills. In June this year, Jindal Steel and Power commissioned a two-mt of sponge iron production facility in Angul, Odisha.