08/05/14 – Sponge iron industry’s hopes pinned on new projects

Gripped with high input costs and a weak demand scenario, the domestic sponge iron industry is now awaiting new projects to come up in infrastructure sector to see fresh demand. This is likely only once a stable government comes to power in Delhi, which can take pending decisions that industry sees as the only hope to bring the sector back on its feet. With nearly 50% of the total industry’s capacity having shut down in the last three-four years and the existing capacity running at half of its total utilisation. Only encouraging policy rollouts by the new government could help the domestic sponge iron producers survive, industry officials said.

Sponge iron is used by the steel industry and finds application in both flat as well as long steel product segments. India is one of the largest producers of sponge iron in the world with a total installed capacity of 37 million tonnes as on March 2013 as per data available with Sponge Iron Manufacturers Association. This form of iron is also used in infrastructure projects like bridges and even in construction industry in form of iron rods and such other products.

“We (the industry) are banking on large long-term projects to be announced by the new government,” B L Biyani, executive director of Mohit Steel Industries said. “This will help the sponge iron demand pick up and revive the industry,” he added. Goa-based Mohit Steel is a manufacturer of mild steel ingots which sources sponge iron from its captive plant in Karnataka.

“Once a stable government comes to power, the sponge iron market is expected to pick up as the government is expected to initiate policies that will perk-up steel demand from the auto sector and also for the long steel products,” said a senior official from Kolkata-based Jai Balaji Industries.

“A lot depends on sale of finished steel in the market. Until the government does not bring in some new policy to push up the demand for finished steel, we cannot see upward movement in the sponge iron demand,” said an industry official who is currently running its 300,000-tonne capacity Chhattisgarh-based sponge iron plant at 95% utilisation despite the hostile market conditions.

Most industry officials were of the view that the current consumption pattern for sponge iron though weak overall is largely uneven and is highly region-based. For instance, usage of sponge iron is higher by units in the central and east of India, while units in the north are using a combination of sponge iron and imported scrap steel to make semi finished steel products.

“Even though imported scrap is expensive compared to sponge iron, plants are preferring to use it since the percentage of yield works out to be higher, which eventually nullifies the impact of high cost imported scrap,” said Nirmal Kumar Agarwal, director with Adhunik Metaliks.

However, most sponge iron producers were unanimous that once requirement for large long-term construction projects comes in from the new government, the steel industry will prefer domestically produced sponge iron to imported scrap steel.

“There are several issues in relying on imported scrap like freight charges, dollar fluctuations, on time delivery etcetera. Once demand picks up for finished steel in the market, demand will surely be more for domestically produced sponge iron than the imported scrap as it will be more cost effective and all other issues will be ruled out,” said Agarwal of Adhunik Metaliks.

Though most sponge iron producers are banking on the new government for their survival, not many were optimistic about the shut units coming to life soon.

“Capacity utilisation of the running sponge plants will definitely go up once new government brings in new project announcements but the ones that are shut will take a while to start,” said the industry official of the Chhattisgarh-based plant.

“The shut units will take some time to come up. There will have to be a very strong and continuous demand for sponge iron for these shut down units to start again. This will not be immediate,” said an official with Jai Balaji Industries.

“Currently, there is some shortage in the domestic sponge iron ore market mainly due to closure of several plants in the last two-three years and not because the demand is too strong,” said a senior official with Bihar Sponge Iron, who’s coal-based unit is shut since August for lack of raw material. “Due to this, prices of sponge iron have also moved up by about Rs 1,500-2,000 per tonne,” he said. “It is important to see how long closure of these units will support the market,” the official added.

Source – Business-Standard.com