Sponge iron prices on the boil

Rising demand from stainless steel industry and a shortfall in supply fuel rise

Prices of sponge iron surged by 9 per cent in the last ten days owing to rising demand from the steel industry and a shortfall in the supply of sponge iron.

With the current price revision, good quality sponge iron is quoted at Rs 12,300 a tonne, while that of medium and average quality is sold between Rs 10,500 and Rs 11,800 a tonne, inclusive of all taxes, for ready delivery.

Sponge iron futures for November delivery shot up to Rs 12,195 a tonne as compared with Rs 11,483 a tonne ten days ago. Sponge iron is a key raw material for steelmaking.

The steel industry is in a buoyant mood as a result of the anticipated higher demand for steel in the winter season.

Consequently, sponge iron producers are set to get a good price in October on the back of huge demand for the raw material from the steel industry. The demand for structural steel and TMT goes up by about 15 per cent in winter because of a boom in construction activities.

"Currently, steel producers are exploiting their full potential, while sponge iron manufacturers are not operating at optimum capacity. Therefore, the industry is witnessing a huge demand-supply mismatch," an industry source said.

Small sponge iron units, which were closed some months ago owing to non-availability of iron ore and electricity in most of the north-eastern states, have not resumed operations, resulting in further shortfall in production.

The sponge iron units in the region were facing a tough time a few months ago because of high input cost and low realisation, with the price of sponge iron hitting a low of Rs 8,500 a tonne in June.

The expansion in the capacity of steel production will require more sponge iron, which can be met through a proportionate enhancement in sponge iron capacity. However, given the current situation, it remains a distant dream.

Similarly, the input cost of sponge iron production has also gone up by 25 per cent with a rise in iron ore prices by 19 per cent in the global as well as the domestic markets. Experts believe that sponge iron prices would remain firm in this quarter, as the current situation is expected to remain unchanged.

India produces about 118 lakh tonne of sponge iron through coal- and gas-based technologies.

"The supply problem, which persisted till a month ago, is over now and the industry is receiving a good supply of imported melting scrap. The price of melting scrap also shot up in the international market, which is percolating to the Indian market," said Anil Suraj, managing editor, 'Steel Times Weekly', who also runs small steel mills in the vicinity of Mandi Gobindgarh, the hub of spot steel sales.

Melting scrap, another raw material for steelmaking, has also gone up by Rs 600 at Rs 18,400 a tonne in the last one month. "So, the upward movement is all around," Anil said.