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The prices of sponge iron, is used as an input for steel making along with metal scrap, have moved up, riding on the rising cost of imported scrap due to depreciation of the rupee against dollar.
Over the past two weeks, sponge iron prices have risen by three per cent to trade at Rs 17,500 a tonne at trading hub Rourkela.
According to industry insiders, the rates are likely to go up by another Rs 500 a tonne, as more buyers are expected to switch from imported scrap to sponge iron. 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.
"The buyers will prefer more sponge iron instead of steel scrap in the 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 a tonne in July. Meanwhile, the rupee has declined against the dollar by more than five per cent in August alone.
More, the imposition of import duty on steel scrap at 2.5 per cent has made the rates costlier. The landed cost of steel scrap at Mumbai port is currently Rs 23,000 a tonne, up from Rs 21,000 a tonne a month ago. India imports around 7.5 million tonnes of metal scrap a year. With domestic scrap generation largely dominated by unorganised sector collectors, metal recyclers have to depend on imports.
"The rates (of sponge iron) 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.
In India, the 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 at Diwali and other festivals which come after the July-September monsoon season.
HEADED NORTH
|Sponge iron rates have gone up by more than Rs 500 a tonne within 2 weeks
|Traders said rising cost of imported steel scrap pushed sponge iron rates
|Steel makers use both sponge iron and metal scraps in blast furnace depending on prices
|Imported scrap are up by Rs 1,000 tonne at Indian ports in one month due to costlier dollar
|Sponge iron demand went up also because of imposition of import duty on metal scrap
|Manufacturers expect the price rally in sponge iron to stay till December
