Small units closing down, big ones cut output; sector wants revival of infrastructure spending.
Sponge iron producers across the country are facing a severe raw material crisis in the wake of a nationwide crackdown on illegal mining.
Around 250 mini and medium-size independent sponge iron producers across the country have shut their units, while large ones have cut output by 30-40 per cent. The worst hit are those with annual capacity of up to 60,000 tonnes.
The badly affected units are dependent on iron ore and coal supply from elsewhere. When both availability and price vary, margins get squeezed.
“Today, margins for sponge iron units are virtually nil. Some are continuing business despite losses, due to lack of other opportunities,” said Amitabh Mudgal, vice-president, marketing and corporate affairs of Monnet Ispat, one of the largest sponge iron producers.
Adding: “Profit, if any, comes only from mineral resources. Only companies with captive iron ore and coal supply will be able to make some profit. Independent manufacturers make losses.”
Large-size manufacturers are also facing problems, though from the consumption sector. Steel mills are failing to lift contracted quantities due to a slowing of demand from the construction and infrastructure sectors. “In April-September, the steel industry witnessed a mere 1.8 per cent growth in demand, negligible when compared to the 6.9 per cent growth of gross domestic product (GDP). Ideally, steel demand growth should have been at par with GDP. The poor performance indicates a slowdown in housing and construction sectors,” said an analyst.
The biggest worry is lack of spending on new projects. The government, say industry sources, has kept new funding on infrastructure depressed.
Also, latest data show that along with a slowing in the fast moving consumer goods sector, automobile sales have taken a hit, reducing the consumption of flat steel. The demand for long steel was already in bad shape, due to the lack of fresh initiatives in infrastructure and housing. Fresh investment in this sector has taken a beating due to high interest rates.
The hope for revival is the 12th five-year Plan, in which the government has proposed $1 trillion of spending on infrastructure. Hence, the sponge iron industry may see a turnaround only next year, said Mudgal.
Meanwhile, the price of sponge iron has fallen by five to seven per cent in the past month, to Rs 22,500 a tonne. Capacity addition is expected to gather pace in the next two years. Around 2.28 million tonnes is expected to be commissioned in 2011-12 and another 1.35 mt in 2012-13. This will push up the country’s total sponge iron manufacturing capacity to 38.3 mt by March 2013.
