Weak growth in demand from steel mills depresses sponge iron prices

The price of sponge iron has fallen by 11 per cent in the past two months, due to weaker than expected demand from steel mills.

The steel-making input is quoting at Rs 20,500 a tonne, as against Rs 23,000 a tonne about eight weeks earlier. This was after a marginal rise at the beginning of June, amid expectations of improved sentiment in the infrastructure and housing sectors, translating to big growth in steel demand. The price fall shows the government’s proclaimed focus on housing and infrastructure is yet to become a ground reality.

“There is no doubt at all that the government’s focus on infrastructure has improved overall sentiment in the manufacturing sector. But, it is yet to replicate on demand,” said Amitabh Mudgal, senior vice-president, Monnet Ispat & Energy.

According to the World Steel Association, this country’s production rose only 1.4 per cent to 41.3 million tonnes in January-June from 40.7 mt in the corresponding period a year before. Global steel production rose 2.5 per cent in this period, to 821.3 mt from 801.2 mt in the corresponding period last year.

Normally, raw material demand weakens during the monsoon season and sponge iron is no exception. The pig iron sector has also seen a slowing in demand, resulting in its price falling to below Rs 25,000 a tonne in the past two months, from Rs 27,000 a tonne.

  “There has been a revival in business sentiment in the  few months since the Bharatiya Janata Party-led government assumed office at the Centre. Replicating the sentiment, automobile sector sales recorded a third consecutive monthly gain in July. The revival in business sentiment helped liquidate inventory, which was held up for months. Fresh demand is yet to come. New demand will emerge only after liquidation of existing inventory ends,” said Mudgal.

“With the improvement in overall sentiment in the manufacturing sector, sponge iron will benefit,” said V R Sharma, deputy managing director of Jindal Steel & Power.

Capacity utilisation of sponge iron units has improved marginally in recent weeks, in anticipation of demand after the monsoon slowdown.