Small sponge iron units ride steel buoyancy

In a bid to cash in on the current perkiness in the steel sector, small- and medium-size sponge iron units are rapidly coming up in the country's iron ore-rich regions "� including Orissa and Chhattisgarh. Each of these units typically has a kiln capacity of up to 1,00,000 tonne.

Steel prices have surged by Rs 500 a tonne across the board over the past month on domestic surging demand.

Although no official data on the fresh capacity additions by existing unorganised sector players and the new units set up in these regions are available, experts believe as long as prices and availability of melting scraps remain a problem, consumption of sponge iron will continue to rise.

The share of steel production through the sponge iron route has jumped to approximately 60 per cent now from around 40 per cent two-three years ago.

With the steel industry currently banking on locally available raw materials owing to higher prices of melting scraps, sponge iron producers are expected to see good days going forward. Prices of iron ore "� the raw material for sponge iron "� remain stagnant over the past few months, while those of finished products are going up.

On the other hand, prices of sponge iron "� the major raw material for manufacturing of steel "� have gone up by Rs 500 per tonne in the past month and Rs 1,500 a tonne over the past three months, as unlike before, steel producers currently depend solely on local raw material. The prices are set to rise further, to the tune of Rs 1,000 a tonne. This is on rising demand from steelmakers in the wake of a handsome offtake of TMT and structurals by the construction sector.

Experts say in the coastal regions such as Orissa, prices of sponge iron are slightly lower, in the range of Rs 11,000-11,500 a tonne, which still reflects a gain of Rs 1,000 a tonne over the past month.

In the organised market, coal-based sponge iron is currently quoting at Rs 12,500 a tonne, while gas-based product is selling at Rs 13,500 a tonne. However, riding on scorching demand unorganised sector players are, reportedly, realising higher prices.

Steel scrap "� another raw material for steel making "� is scarce in the domestic market and its imports have declined drastically.

"In the international market, steel scrap (mainly melting scrap) is trading at higher levels of $320-330 a tonne, which works out to Rs 17,000-18,000 a tonne. This is significantly higher than locally available raw material prices," said Amitabh Mudgal, VP-marketing & corporate affairs, Monnet Ispat.