Even as the production of sponge iron in the state has gone down drastically following lower availability of raw material, the prices have not reacted accordingly due to dull demand. The rates are seen stabilising at current levels for another three months, said industry officials and experts.
High grade sponge iron has been trading around Rs 21,700 per tonne including taxes at main hub Rourkela for past three months, in spite of production falling to nearly 100,000 tonne per month in the same period, lower than 200,000 tonne a month produced during April-May.
"The slump in real estate market has affected the sponge iron demand severely as 90 per cent of the industry in Orissa caters to production of TMT bars and rods. The prices are moving in a very narrow range of Rs 21,500 to Rs 21,700 per tonne since October and I do not think it will go up until March 2012,” said Pradipta Mohanty, chairman of Sundergarh-based Vishal Metallicks.
Demand for house construction waned in second half of 2011 with Reserve Bank of India (RBI) raising key rates by 2.25 per cent in seven tranches. The Base Rate, below which banks cannot lend for any category of commercial loans, has now surpassed 10 per cent mark at several public and private sector banks as a result of the frequent rate hikes, up from 8 per cent earlier.
Besides, more than 50 per cent rise in cement prices and costlier labour has made many prospective home buyers shelve their plans for some more time, industry sources said.
"As construction sector is reeling under high cost and low demand, we do not think sponge iron prices should rise in near future," said Din Dayala Agarwal, managing director of Suryaa Sponge Iron Ltd.
Industry leaders hope the central bank would start cutting rates after March as higher rate of interest has affected the industrial production and growth.
Sponge iron, produced from iron ore lumps or pellets by reducing oxygen content, is melted in blast furnaces with scraps to produce steel.
Orissa is the highest producer of sponge iron in the country with 104 plants. These plants are mostly concentrated in Sundergarh (47) and Keonjhar (21) districts with the total production capacity being around 37,000 tonnes per day.
However, the production hit rock bottom in 2011 as state pollution control board shut down as many as 32 units on charges of not complying with environmental protection norms.
