Higher sponge iron prices to bolster Tata Sponge's earnings

A sharp escalation in sponge iron prices, fuelled by an uptick in the construction sector demand, would help Tata Sponge Iron post robust earnings after recovering from a marginal profit of Rs 7 lakh that the company recorded in the December quarter.

With demand for construction sector expected to remain buoyant till May, sponge iron prices are unlikely to weaken anytime soon. Sponge iron prices have appreciated by Rs 3,800 per tonne since February this year, touching Rs 18,000 a tonne in April and gaining significantly from the lows witnessed in the middle of 2016.

Riding on the sponge iron price rally, Tata Sponge Iron share price hit an all-time high of Rs 900.50, a 52-week high on Tuesday morning but it fell from high on profit booking later and continued fall even today.

"Higher sponge iron prices is helping big players in sponge iron business like Tata Sponge. Additionally, Tata Sponge has a big inventory which helps the company to encash when prices are buoyant”, said an industry source.

Tata Sponge Iron officials could not be reached for comments. The board of directors of Tata Sponge Iron Ltd is scheduled to meet on April 26 to approve the company's audited financial results.

Tata Sponge produces high-grade sponge iron with an annual manufacturing capacity of 390,000 tonne. Sponge iron is an intermediate product used in steel making, the product being mostly consumed by the long steel producers.

Being a big producer, Tata Sponge Iron has an advantage over the clutch of unorganised producers who find it tough to source raw materials for their plants. Though India is the biggest sponge iron producer, capacity utilisation remains lacklustre. In FY16, the country produced 17.87 million tonne out of the rated capacity of 48 million tonne per annum.