Sponge iron prices are likely to rise 10 per cent in November, due to demand for long steel from infrastructure companies. At present, premium sponge iron costs Rs 18,000 a tonne.
The price of the steel-making raw material produced from direct reduction of iron ore (in the form of lumps, pellets or fines) remained volatile during the last fortnight.
It rose sharply by Rs 1,000-1,200 a tonne in the first week of October due to demand from steel mills. This was primarily because of stockpiling for the October-December period.
There was a sudden dip in demand for sponge iron in October as steel mills failed to increase offtake due to weak construction activity. The ongoing infrastructure and construction projects are yet to pick up for the current quarter.
The industry had expected demand to pick up after the Commonwealth Games. However, poor offtake caused sponge iron to plunge in the second week by Rs 1,200-1,500 a tonne.
However, the sentiment is expected to reverse next month and prices may recover early next month, says Amitabh Mudgal, vice-president (marketing and corporate affairs) of Monnet Ispat, one of the largest companies in the sponge iron industry.
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Long steel demand generally rises with activity in the construction sector in October. But, this time, demand from the sector saw a marginal increase.
“Whatever steel demand growth we are seeing on Tuesday is of flat steel. This is due to demand for consumer (white) goods during the current festival season,” said Mudgal.
But, long steel demand, which is directly linked to the growth in the country’s gross domestic product (GDP), has to go hand in hand. If growth in one sector has to sustain for long, others will have to complement it. Since the government is forecasting an eight per cent-plus growth in GDP, long steel demand should rise proportionately, say experts.
With steel imports expected to fall and demand to rise during the second half of the year ending March 2011, the steel ministry has raised its forecast for growth in steel consumption from nine per cent to 10 per cent.
Steel consumption rose 9.7 per cent in the first five months of the current financial year.
“The fall in sponge iron prices is a temporary phenomenon as all other indicators like iron ore, coking coal, etc, are on an upward move. Therefore, prices of sponge iron will recover soon,” said Vimal Kumar Somani, director of Mumbai-based Topworth Group, which runs a sponge iron plant in Raipur.
The fall in sponge iron prices has surprised the industry because iron ore has moved up consistently so far this month. Last week, iron ore prices shot up by $8 to $160 a tonne. India produces nearly 23 million tonnes sponge iron every year.