Soaring ore hits sponge iron firms

Despite an 18 per cent rise in prices in a month, sponge iron producers are struggling to maintain their margins, which have come under pressure from the soaring iron ore prices.

Sponge iron is a major raw material for making steel, while iron ore is the only raw material used in the production of sponge iron.

The prices of sponge iron have gone up by Rs 2,000 in a month-and-a-half and are set to go up further by Rs 500 to Rs 14,000 a tonne by the end of this month.

Sponge iron producers, however, have failed to cash in on the rising prices, with the iron ore prices "" which have surged in tandem and are ruling at Rs 3,700 a tonne for the mineral with 62 per cent iron content "" eating into the margins of sponge iron manufacturers.

Although iron ore exports have declined substantially due to the government's Rs 300 a tonne export duty, the domestic prices are showing no signs of decline.

"I fail to understand why iron ore exporters have not succeeded in passing the extra burden onto buyers. I think they have diverted the extra levy to domestic clients, resulting in the surge of iron ore prices," said a steelmaker, who did not want to be quoted.

The Federation of Indian Mineral Industries has estimated about 40 per cent decline in iron ore exports in 2007 as a consequence of the export duty. Other estimates peg the decline in exports by 50 per cent to 5 million tonne in March alone.

Chinese buyers "" about 80 per cent of India's iron ore is exported to China "" unwilling to pay higher prices for the mineral, are sourcing it from Brazil at a cheaper rates. Indian exporters, hence, had no option but to raise the domestic prices to minimise the losses arising out of the export duty.

Although, steel scrap is an alternative to iron ore in sponge iron production, its availability has become a problem. Steel scrap was not available even at a price as high as $410 a tonne, an industry source said. Cooking coal, too, has gone up to $175 a tonne.

"Everytime we are trying to put some money into our kitty, we face some problem or the other," said an official of Monnet Ispat.

Despite the problems, the official hoped the first quarter of the current financial year to remain favourable for steel and raw material sectors. He said high raw material prices would drive up steel prices by at least Rs 1,000 a tonne across the board in the second fortnight of the month.