SAIL plans to set up sponge iron plant

Steel Authority of India Ltd (SAIL), the country's largest steel producer, is exploring the possibility of setting up a sponge iron plant to feed its blast furnaces. This is as part of the effort to cut costs through in-house production of the material.

"We are preparing a feasibility report for setting up a sponge iron plant. With this, we can produce at a lower cost as we have our own iron ore mines," V S Jain, chairman, SAIL told Business Standard.

The company has engaged engineering consultancy firm MECON to prepare the report.

The new plant would enable SAIL to use its own sponge iron in the manufacturing of steel instead of buying it from other domestic producers. The state-owned enterprise produces about 12 million tonne of steel annually.

Jain said the sponge iron plan was part of the state-owned company's efforts to maintain its competitiveness and improve its financial position. The company has lowered its debt-equity ratio from 6.5:1 as on April 1, 2003 to 2.4:1 as on December 31, 2003.

This was done by lowering the interest rate by 1.3 percentage points to about 8.3 per cent and also by swapping high-cost debt with low-cost ones.

As part of various innovative measures taken by the company, furnace oil was being used as an alternative to coal at SAIL's Bhilai plant due to the current shortage of coal and the trials have yielded good results. The company has also started using coal tar at its plants in Bhilai, Bokaro, Durgapur and Rourkela.

"We want to maintain production through different alternatives in case we face a similar situation like the current coal shortage. The threat has come to us. It also showed us new opportunities, which we are pursuing," Jain said.

The coal shortage has resulted from the flooding of mines in Australia, which supplies 98 per cent of the total coal requirement of SAIL. This has forced the company to explore substitutes to coal.

The SAIL board has recently approved a corporate plan to raise the company's capacity by eight million tonne to 20 million tonne by 2011-12 to meet an expected rise in demand in the domestic market.

"From a long term perspective, the coal shortage was a blessing in disguise. We had to take a commercial view as to how much we would like to buy from the spot or look for other alternatives. As we end the year, our dependence on coal and coke will be less in terms of use," Jain said.