 "Auctioning coal linkages can escalate production costs for sponge iron industry")
Sponge iron companies, squeezed out in recent auctions of coal blocks, face further discomfort as the government considers selling to the highest bidder coal linkages that assure them discounted fuel.
The government has asked SBI Capital Markets to examine whether coal linkages can be auctioned.
“Auctioning coal linkages will take coal prices close to that of the recently auctioned captive blocks, pushing up the cost of production for most sponge iron companies by 40-50 per cent,” Deependra Kashiva, executive director of the Sponge Iron Manufacturers’ Association (SIMA), told Business Standard.
“The technical and financial conditions to participate in the recent coal block auctions were so tough that sponge iron companies were not able to bid. Now if linkages are auctioned, the sponge iron industry will lose out further,” said Lalit Periwal, a senior executive with the West Bengal-based Shobha Ispat. In the recent coal block auctions, Shobha Ispat lost its captive Ardhagram mine to OCL Iron & Steel Limited, which makes value-added products through sponge iron.
Around 83 per cent of coal was allotted to the steel and sponge iron industry before deallocation of the mines. After the auctions, the two industries saw the fuel allotment come down to 32 per cent as the aluminium industry’s allotment climbed to 30 per cent from 1-3 per cent earlier.
The capacity utilisation of the sponge iron industry was 48 per cent in March 2014, down from 50 per cent in the preceding year. Iron ore supplies over the last couple of years are causing India’s sponge iron capacity to idle.
“Foreign coal is cheaper now so sponge iron units can rely on imports. However, this cannot be a permanent option as prices will not always remain low,” said Vijay Surjan, vice-president, commercial, Vandana Global.
“The location of the unit is crucial when considering imports. Logistics costs go up if the plant is landlocked. Availability of railway rakes is another hurdle,” said Bajrang Lohia, chairman of Brahmaputra Metallics. This company is importing 60-70 per cent of the coal needed for its sponge iron unit and has faced a 40-day delay over rakes.
Though most of the sponge iron industry is going through a difficult phase, select companies like Monnet Ispat and OCL Iron & Steel have bagged captive coal blocks in the auctions.
The government has asked SBI Capital Markets to examine whether coal linkages can be auctioned.
“Auctioning coal linkages will take coal prices close to that of the recently auctioned captive blocks, pushing up the cost of production for most sponge iron companies by 40-50 per cent,” Deependra Kashiva, executive director of the Sponge Iron Manufacturers’ Association (SIMA), told Business Standard.
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The sponge iron industry is made up of small and medium-sized companies with capacities of 30,000-100,000 tonnes. Most of these units are merchant facilities that make sponge iron and sell it to steelmakers without any value addition, a low margin business.
“The technical and financial conditions to participate in the recent coal block auctions were so tough that sponge iron companies were not able to bid. Now if linkages are auctioned, the sponge iron industry will lose out further,” said Lalit Periwal, a senior executive with the West Bengal-based Shobha Ispat. In the recent coal block auctions, Shobha Ispat lost its captive Ardhagram mine to OCL Iron & Steel Limited, which makes value-added products through sponge iron.
Around 83 per cent of coal was allotted to the steel and sponge iron industry before deallocation of the mines. After the auctions, the two industries saw the fuel allotment come down to 32 per cent as the aluminium industry’s allotment climbed to 30 per cent from 1-3 per cent earlier.
The capacity utilisation of the sponge iron industry was 48 per cent in March 2014, down from 50 per cent in the preceding year. Iron ore supplies over the last couple of years are causing India’s sponge iron capacity to idle.
“Foreign coal is cheaper now so sponge iron units can rely on imports. However, this cannot be a permanent option as prices will not always remain low,” said Vijay Surjan, vice-president, commercial, Vandana Global.
“The location of the unit is crucial when considering imports. Logistics costs go up if the plant is landlocked. Availability of railway rakes is another hurdle,” said Bajrang Lohia, chairman of Brahmaputra Metallics. This company is importing 60-70 per cent of the coal needed for its sponge iron unit and has faced a 40-day delay over rakes.
Though most of the sponge iron industry is going through a difficult phase, select companies like Monnet Ispat and OCL Iron & Steel have bagged captive coal blocks in the auctions.