The sponge iron industry in Karnataka, which accounts for about 22 per cent of the state’s total iron and steel industry, is in doldrums owing to acute shortage of the key raw material—iron ore. While a majority of sponge iron units have downed shutters, the remaining have turned non-performing assets due to financial crunch.
There are as many as 53 small and medium scale units, with a combined production capacity of 12,600 tonnes per day (about 4.6 million tonnes, or mt, per annum). Of these, 40 have already closed their operations as they were unable to purchase high cost iron ore in the e-auctions. The remaining units, however, are operating for about 15-20 days in a month, running at 27 per cent of their installed capacity.
Apart from sponge iron, there are seven pig iron plants in the state, five of whom have now closed down.
“Sponge iron makers in Karnataka are able to produce only for about 15-20 days in a month due to the shortage of iron ore presently. NMDC sells its ore at Rs 4,200 to Rs 4,800 per tonne for lumps and Rs 2,200 to Rs 2,600 per tonne for fines. Being small and medium firms, sponge iron units cannot afford to buy at such a high price,” said T Srinivas Rao, president, Karnataka Sponge Iron Manufacturers’ Association (KSIMA).
The total iron ore requirement of iron and steel industry in the state stands at around 33 mt per annum at 80-85 per cent of capacity utilisation. Subsequent to the directions of the apex court that there should be no fresh mining activity in Karnataka, the total stockpiles available for auction stands today at around 26 mt of iron ore. It is estimated that around 1 mt of stock is available, which is yet to be auctioned.
The iron ore being auctioned from stockpiles is of very inferior quality having low Fe content and high alumina, silica, manganese, etc. Most iron and steel companies do not have technology to utilise such inferior quality iron ore and, therefore, have either closed down or are running at very low capacity utilisation. This has not only caused permanent damage to their plant and machinery, but also led to job losses in the industry.
As of now, the integrated steel plants are running at average 68 per cent of capacity utilisation and pig iron units are running at 21 per cent.
Apparently, public sector mining company NMDC has not been able to meet the Supreme Court’s directive in August 2011 to produce up to 1 mt a month. In fact, its production has further declined to around 450,000 tonnes in October 2012 from 550,000-600,000 tonnes in previous months. Since the Supreme Court permitted opening of category A and A1 mines in April this year, only four mines have resumed operations with a permissible annual production of 1.96 mt. Hence, Seshagiri Rao, joint managing director of JSW Steel, recently asked the Karnataka government that mining in Category B mines be resumed immediately
Sponge iron units are hardly getting any stock as the ore is routed only through e-auctions. And most of the sponge iron units are not able to purchase at e-auctions due to very high base prices.
The Karnataka-based sponge iron units contribute 20 per cent of the national production of sponge iron, at 22 mt per annum.
Rao urged the state government to consider the applications of sponge iron units for captive mining leases for which they had applied about seven years ago. He also asked the government to allot a minimum of 50 per cent of iron ore mined by the mining lease holders to medium scale industries as a majority of mine owners export iron ore.
