Sponge iron prices have surged by 20 per cent in a month on apprehension that a series of raids across the country to try and stop illegal mining of iron ore will constrict supply. Currently, premium quality sponge iron is quoted at Rs 18,000 a tonne, against Rs 15,000 a tonne about a month earlier.
Also, developed economies have started recovering gradually from last year’s recession. Consequently, the demand for shredded scrap has re-emerged from major European countries, the largest exporter of sponge iron’s only substitute.
Amitabh Mudgal, vice-president (marketing and corporate affairs) of Monnet Ispat, one of the largest companies in the sponge iron industry, gives two reasons for the increase in prices.
One, he says, is the Orissa government’s curb on iron ore transportation and the second is a renewed attempt across the country to control illegal mining. The Orissa government had put some transport restrictions on mines in Joda area, one of the largest mining centres in the state, in the wake of allegations of illegal transportation.
And, said sources, the government suspended mining in 128 mines and cancelled 482 trading licences in Orissa for irregularities following vigilance raids. The government is also cracking down on companies and traders engaged in illegal mining in Goa. Goa, Andhra Pradesh and Orissa, the major ore-producing states in the country, together account for 50 per cent of exports.
Licensed producers, however, aren’t complaining, as after several months of poor demand, there is a revival in the steel industry and thereby, the sponge iron industry.
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Sponge iron producers are looking for an opportunity to raise their products’ selling prices.
“The industry was operating on virtually zero margin till December just to honour commitments. Profit margins had bottomed out due to high iron ore prices and low demand from the steel industry,” said Mudgal. Demand resumed with the revival in the construction sector early this year, due to the government’s emphasis on the infrastructure sector. This is expected to accelerate next year.
During the last quarter of 2009, the demand for flat steel jumped 10-15 per cent. But, that for long products remained stagnant. Now, the latter demand has also got restored, driving prices of all raw materials in the sector. Shredded scrap prices have jumped in the past four to five months, to hit $430 a tonne, against $340 a tonne in December 2009.