Sponge iron prices up 17% on renewed demand

With a view to cash in on the opportunities in the current downturn, sponge iron producers have raised their product prices by 17 per cent in the last fortnight. The prices of the steel making raw material, thus, have jumped to Rs 14,000 a tonne from Rs 12,000 a tonne about a fortnight ago.

The sponge iron demand has revived especially from long steel producers as the imports of its substitute - shredded scrap- have slowed down. The producers of secondary steel, constituting about 60 per cent of India’s 50 million tonnes steel production, use both sponge iron and scrap for steel making. Generally, the sponge iron demand peaks up in the event of shortage of scrap supplies.

The price hike is expected to offer a breather especially to hundreds of independent mini sponge iron producers who have been reeling under huge pressure since slowdown began early last year. In the third quarter of last year, sponge iron prices had peaked to Rs 18,500 per tonne just before the global economic meltdown started.

“The pipeline inventory has cleaned up on renewed demand from long steel producers. Now, fresh demand is estimated to emerge to fill the pipeline inventory in addition to a narrow consumption orders from steel producers as well,” said Amitabh Mudgal, vice president, marketing and corporate affairs, Monnet Ispat Ltd.

Although the demand of structural steels has revived, whether the price will sustain this level for long remains a matter of great concern. If the price of iron ore, the raw material for sponge iron, is raised similarly then the demand of steel making raw material may decline. Hence, the current price hike is a temporary measure which producers are trying to cash in on, fears Mudgal.

But, if iron ore miners hold price for some time, the price hike in sponge iron may sustain little longer, he added.

Any further price rise will offer the industry to raise capacity utilisation from an estimated 75 per cent now to 80 - 85 per cent by the end of this fiscal.

The revival in demand was also seen in finished steel including longs and flats that witnessed a price rise across all sectors. The flat products recorded a price rise between Rs 200 - 300 per tonne while long products sharply rose between Rs 500 - 700 per tonne in the last fortnight.

The benchmark steel ingot, which is currently in huge demand from specialised steel manufacturers, has also seen a price hike between Rs 500-700 to Rs 25,600 per tonne in spot Mandi Gobindgarh market. Angles and girders (joists) shot up similarly to Rs 29,600 per tonne and Rs 32,600 per tonne respectively.

“Fear psyche still persists in consumers’ mind that prevents long term orders,” said Anil Suraj, a steel analyst in Mandi Gobindgarh, Punjab.

With an across the board Rs 200-300 per tonne rise in flat products’ prices, hot rolled coil (HRC) is currently sold at Rs 42,500 per tonne while cold rolled coil (CRC) is sold at Rs 44,600 per tonne.