Sponge iron prices dip 10% on lower demand

5-10% cut in output by domestic steel makers caused demand slump

Sponge iron prices declined 10 per cent over the last two months as demand has slowed down substantially owing to 5-10 per cent cuts in production by domestic steel producers.

The steel industry is facing stockpiles for quite some time now, as demand has dropped since the beginning of rainy season in the country.

Two months ago sponge iron prices were hovering around Rs 14,000 per tonne, which came down to Rs 12,600 per tonne on Wednesday.

"Construction work has not yet started. Decision-makers have shifted their attention towards creating resources for rebuilding their homes damaged or wiped out by floods," a Delhi-based trader said.

Further, he said, earthquake in the north has drawn the government's attention to prioritising fund clearances for repair/renovation works. The state and the Central governments are on the verge of clearing funds for the fourth quarter of the fiscal year. Once funds are cleared, the construction activities would start, which will push up demand and hence, prices.

In the financial year 2004-05, India produced 10,063,295 tonne of sponge iron, of which 4,643,107 tonne was produced through the gas route and 5,420,188 tonne through the coal route.

For the entire current calendar year, on the higher side, sponge iron prices parked up to Rs 16,500 per tonne in the first quarter - on rising demand from the steel industry - and on the lower side, it slipped to below Rs 12,000 per tonne towards the end of July.

"It is expected that the current bout of price decline would be overcome soon, as steel demand would rise in near future to take off stockpiles. This would also make the main (steel) producers resume production at full capacity," the trader said.