Mini sponge iron units facing closure

Problems faced in coal linkage, disruption in iron ore supply and declining margins have forced 30-40 mini sponge iron producers to shut down their shops temporarily.

These mini sponge iron units, which mushroomed one-and-a-half years ago when steel prices started booming, have a combined production capacity of about 0.5 million tonne.

The strike is aimed at drawing attention of steel bigwigs and the government. But large companies such as Monnet Ispat feel that the small units were forced to shutdown as they were incurring hefty losses on a daily basis.

"Whenever steel prices start rising, lots of small units crop up. However, they vanish as soon as the cyclic downward trend sets in," said a producer.

Sponge iron is an important raw material for steel production. The country's total output is at 10 million tonne in 2004-05.

"Companies such as Steel Authority of India Ltd (SAIL), Essar Steel, Jindal Iron and Steel which have adequate coal and iron ore supply linkages do not have to depend upon others for supplies. But, small sponge iron producers are affected due to non-availability of adequate raw materials," a trader said.

These companies can stage a comeback if steel prices increase in the last quarter of 2005-06.

"The government may clear funds for its planned investment this fiscal year which would renew interest in infrastructure development. Therefore, steel price in the fourth quarter of the current fiscal may go up marginally if not substantially," said Amitabh Mudgal of Monnet Ispat Ltd.

Contradicting this view, Ramesh Iyer of Ncdex said that steel prices may decline further by Rs 500 in the last quarter of the current fiscal due to rising inventory.

In the last 2-3 days steel ingots prices have declined by Rs 1000 per tonne throughout the country, currently quoting at Rs 18,400 per tonne in Ghaziabad.

Lots of induction furnaces have come up in the recent past and there has been no significant rise in rolling mill capacity. Hence, steel prices will decline in the months ahead, said Iyer.

"When the government assures us adequate supplies of iron ore and coal linkage only then we will start production", said an official of Chhattisgarh Sponge Iron Manufacturers Association.

"The Chhattisgarh government had recently raised the power tariffs for steel units which is hitting the industry badly," the trader said.

Chhattisgarh produces 40 per cent of India's sponge iron and has resources of 230.36 million tonne of iron ore in Bastar, which accounts for 18.23 per cent of the country's total iron ore reserves. The state also has 18 per cent of the country's total coal reserves mainly in Bilaspur and Korba areas.

RAW DEAL

The mini sponge iron units have a combined production capacity of about 0.5 million tonne

Whenever steel prices start rising, lots of small units crop up but vanish as soon as the cyclic downward trend sets in.

The government may clear funds for its planned investment this fiscal year which would renew interest in infrastructure development. Therefore, steel price in the fourth quarter of the current fiscal may go up marginally

Lots of induction furnaces have come up in the recent past and there has been no significant rise in rolling mill capacity