Sponge, pellet makers to bear brunt of rail freight hike

Sponge iron makers have recently cut down rates by Rs 200 per tonne to Rs 19200 a tonne at Rourkela owing to poor demand

Sponge iron producers and pellet makers said, the decision to hike rail freight by the Union government will affect their cost of production, already affected by low demand, raw material supply problems and recent tax hike in Odisha on petrol and diesel.

“Sponge iron production has become unattractive these days due to very poor demand from arc furnaces. As we have already cut the rates, the recent rail freight rise will only eat away our margins,” said R S Kejriwal, official with Rexo Strips Ltd, a Rourkela-based sponge iron maker.

Sponge iron makers have recently reduced rates by Rs 200 per tonne to Rs 19,200 a tonne at main hub Rourkela owing to poor demand.

The Indian Railway today decided to hike freight rates by 6.5 per cent, which will become effective from June 25. The increase will add Rs 70 for each tonne of iron ore transported for domestic use and approximately Rs 90 per tonne for export purpose.

The rates of iron ore, meanwhile, has already gone up in absence of supplies from large mines due to mining ban order imposed by Supreme Court. Many miners said, there is no decision yet to reduce rates of ore because of the rail freight hike. “There is no plan to cut iron ore rates,” said an official with a large mining firm.

Fines with 62 per cent iron ore content are currently traded at Rs 2,300 to Rs 2,500 a tonne based on mines locations in Odisha, the largest iron ore producing state in the country. At least 60 per cent of iron ore produced from the state is transported by railways such as South Eastern Railways and East Coast Railways.

Pellet producers, who are currently dependent upon railway transportation heavily, said, this the steepest rise they have seen. “The recent hike is too much, transportation cost will be significant,” said an official of Brahmani River Pellet Ltd (BRPL). The plant regularly sources iron ore from Keonjhar district for its 4 million tonne per annum factory at Kalinganagar. Steel related raw materials and semi finished products are witnessing price cut across the globe, due to poor demand from major consuming nations.

Starting January 2014, iron ore rate has dipped 34 percent in international markets to trade at $ 90 a tonne, the lowest price in last 21 months as demand for steel has remained sluggish in biggest consuming country, China.