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High Iron Ore Prices a Bother

High Iron Ore Prices a Bother


The Indian sponge iron industry, over the past couple of months, has been witnessing a constant hike in prices amid robust steel demand and shortage of a key commodity for manufacturing steel – iron ore.

As per reports, the prices of sponge iron jumped from INR 18,600/MT (P-DRI price ex-Raipur, excluding GST) reported on October 1, 2020 to INR 26,100/MT on December 21, 2020.

Talking to Steel360, Deependra Kashiva, Executive Director, Sponge Iron Manufacturers Association (SIMA), said, “At the moment, the uncertainty level is very high in the sponge iron industry, because sponge iron makers totally depend on the availability of iron ore. Two things are very important for sponge iron manufacturers: how iron ore availability is going to be and at what prices. Right now, prices of steel are on the higher side but it is very difficult to say how long this situation will remain in 2021.”

Sponge iron manufacturers have not been doing very well from the beginning of 2020. But, of late, with improvement in market prospects, sustainability of the sponge iron industry has increased tremendously. It is now expected that production, which has picked up in the last few months, will sustain in the coming days.

The key challenge the sponge iron industry is facing today is availability of iron ore at an affordable price. Iron ore prices have increased tremendously this year, sometimes twice or thrice in a month, impacting the financial performance of sponge iron producers. They are being forced to increase sponge iron prices in the process. “If the price of iron ore is increased by INR 500 per tonne, then the cost of production of sponge iron will increase by at least INR 800-850 per tonne. Sponge iron prices are also affected by the landed cost of imported steel melting scrap. These are the two factors driving the price of Indian sponge iron,” Kashiva said.

“If iron ore is made available to the sponge iron producers on a continuous basis, then the overall financial performance would be very good,” he added. Continuous supply of iron and its affordable price are important.

Scrap Impact

Scrap prices are also responding to the present situation. The landed cost of steel melting scrap is also very high. Prices of international scrap steel have skyrocketed and are not likely to come down very soon.

As per many reports, the government is going to make a huge investment in the infrastructure and housing sectors, which will lead to an increase in the demand for sponge iron, and this is expected to continue in 2021.

Kashiva said, “I am very optimistic about the growth in the sponge iron industry. The reason is that, it is going to be the main metallics for the steel makers in India.”

International scrap availability is shrinking and most of the countries have already placed restrictions on exports of steel scrap. Either countries are putting a complete ban on exports of steel scrap or imposing a licensing regime to restrict the export of steel scrap. So, international scrap availability would continue to shrink. India currently imports around 7 MnT of scrap. In the coming days steel makers will use more and more sponge iron for steel production.

Expectations from Upcoming Budget

The government should continue with the 2.5% duty on the import of steel melting scrap.

The import duty on non-coking coal should be reduced to nil as it is the basic input material and its availability is restricted for sponge iron makers in India.

Coal availability from Coal India Ltd (CIL) is not sufficient to supplement the requirement of the Indian sponge iron industry.