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Rates of sponge iron, which is used as an input for steel making along with metal scraps, have moved up riding rising cost of imported scrap due to depreciation of rupee against dollar.
Sponge iron rates have gone up by more than three per cent in past two weeks to trade at Rs 17,500 per tonne at trading hub Rourkela.
Industry insiders said the rates are likely to go up by another Rs 500 per tonne as more buyers are expected to switch to sponge iron instead of imported scrap.
Sponge iron or directly reduced iron (DRI) is used as a raw material in electric arc furnaces and induction furnaces to produce hot steel with some amount of steel scrap.
The arc furnaces usually require sponge iron and steel scrap in 60:40 ratio and change the amount of steel scrap in the mix based on the prices. As a costlier dollar has made imported scraps costlier, buyers are switching to sponge iron.
"The buyers will prefer more sponge iron instead of steel scrap in days to come. We hope the rates could touch Rs 18,000 per tonne at Rourkela in September and the demand will last till December,” said an official of Tata Sponge Iron Ltd.
In international markets, steel scrap rates are hovering around $340 a tonne at European ports at present, up from $333 per tonne in July. Meanwhile, the Indian rupee has declined against US dollar by more than five per cent in August alone to reach at Rs 64.30 a dollar.
Moreover, the imposition of import duty on steel scrap at 2.5 per cent has made the rates costlier. Landed cost of steel scrap at Mumbai port is currently at Rs 23,000 per tonne, up from Rs 21,000 a tonne month ago.
India imports around 7.5 million tonnes of metal scrap annually. With domestic scrap generation largely dominated by unorganised sector collectors, metal recyclers have to depend on imports.
Besides rates of imported scrap, natural demand for all steel products in post-monsoon period has also supported the sponge iron rates, trade bodies opined.
"The rates have gone up because of regular post-monsoon demand and not on costlier scrap as the scrap imports have not fallen despite imposition of import duty. It is overall demand for all steel products that has seeped into sponge iron too,” said Deependra Kashiva, executive director of Sponge Iron Manufacturers' Association (SIMA).
In India, demand for all steel products rise in post-monsoon period coinciding with construction activities that speed up during the period.
Demand for flat products, also go up during this period in expectation of better automobile sales in Diwali and other festivals which fall after the July-September monsoon season.
Demand for flat products, also go up during this period in expectation of better automobile sales in Diwali and other festivals which fall after the July-September monsoon season.
