Sponge iron prices zoom 25%, pig iron up 17% on hike in ore and coal rates

The price of steel making intermediaries such as sponge iron and pig iron have seen a sharp upward swing after a recent spurt in rates of iron ore and coal, two key inputs for these products.

Sponge iron and pig iron are mostly converted to steel in electric arc or induction furnaces. This accounts for nearly 45 per cent of the country’s total steel production.

According to trade sources, between November and now, sponge iron prices have increased up by 25 per cent. The rate ex-Durgapur rules at Rs 22,500 a tonne, compared to Rs 18,000 two months earlier. The base price of pig iron is quoted at Rs 28,000 a tonne, compared to Rs 23,900 in November, a rise of 17 per cent. 

“The prices of steel intermediaries are moving up in line with steel prices, which has spiralled due to rise in procurement cost of iron ore and coking coal,” says an industry source. The input cost for steel making, on account of these two ingredients has gone up by about Rs 4,000 a tonne over the past couple of months, mostly passed on to consumers.

Unlike integrated steel plants which use iron ore fines, pellets and lumps to produce steel, sponge iron makers in India mostly use ore lumps in their Direct-Reduced Iron (DRI) furnaces. Lump price ex-mine in Odisha, home to the largest number of sponge iron plants, has gone up from Rs 4,100 a tonne in November to Rs 5,800, a rise of 41 per cent.

In the same period, non-coking coal, the other key input for sponge iron, has seen a price rise of five to 10 per cent. With domestic coal supply a mess due to acute shortage of railway rakes, sponge iron makers are mostly depending on imported coal. Its landed cost at Indian ports has gone up from $89 a  tonne in November to $94 now.

“Up to now, we have been able to pass on the hike in input cost to our customers, the steel plants, mainly for two reasons. First, steel prices are also moving up. Second, the international price of scrap, used as an alternative to sponge iron by the secondary steel manufacturers, is ruling high, giving us the cushion to raise our product price,” says a senior official of a sponge iron plant.

Adding: “This is not sustainable. The tenure of steel production cut in China will end in March. This will bring pressure on domestic steel prices and consequently on sponge iron prices. Beside, scrap prices in the international market have been volatile. Any drop here will shift secondary steel makers to scrap and force sponge iron producers to reduce prices.”

Sponge iron capacity in the country is estimated at 47 million tonnes a year, with capacity utilisation of 54 per cent in 2016-17. In the current financial year, with total production expected at 29 mt, capacity utilisation is pegged at 60 per cent. 

Closure of several large iron ore mines in Odisha from this month for non-payment of a court-imposed penalty for excess mining has led to a steep hike in iron ore rates. The uncertainty over  availability has encouraged the owners of operational mines in the state, as well as the other big supplier of the ore, NMDC, to raise their prices. Odisha and NMDC together account for nearly 70 per cent of the ore supply to the segment of the domestic steel industry which operates without captive mines. About 75 per cent of the country’s steel capacity, in the absence of captive mines, is dependent on merchant miners.