The country's largest iron ore producer, NMDC, is getting a fresh financial viability study of SIIL done for its proposed Rs 1,200-crore investment in the firm as world sponge iron prices have slumped.
"There has been a drastic fall in sponge iron prices and as a prudent investor, NMDC will get the financial viability study re-done before physical investment," NMDC and SIIL Chairman Rana Som told PTI.
Sponge iron prices globally have fallen more than 50 per cent in the last 10 months and are hovering around Rs 12,000 a tonne.
Post-merger, NMDC is considering an investment of Rs 1,200 crore in SIIL to increase its annual production capacity to 2.6 lakh tonnes from the existing 60,000 tonnes, besides diversifying into steel products manufacturing.
Som said the investment will now depend on the financial viability study based on the current market scenario and projected price range of sponge iron.
He said the report was expected by December-January when the merger of SIIL into NMDC is likely to get completed. The merger was earlier scheduled by October. It has been delayed due to various regulatory bottlenecks.
The government in May 2008 had cleared the NMDC-SIIL merger for the sponge iron firm's turnaround with financial support and an assured supply of iron ore.
Sources said the SIIL's merger with NMDC is viewed as not a profitable venture at present in view of the sharp drop in sponge iron prices which have fallen to roughly about Rs 12,000 a tonne from Rs 26,000 a tonne about a year ago.
Andhra-Pradesh based SIIL, according to information, has not been able to utilise its full 60,000 tonnes of annual roduction capacity due to an acute shortage of iron ore in the past few years.
