Iron ore price rise puts small sponge iron makers in quandary

The sharp rise in iron ore prices has taken a heavy toll on small and medium sponge iron manufacturers across the country.

Earlier this month, NMDC increased the iron ore prices used by sponge iron makers by 30 per cent, from ₹5,100 to ₹6,600 a tonne.

Vijay Jhawar, Secretary, Chhattisgarh Sponge Iron Manufacturers Association, said the Centre should fix the price of iron ore supplied through linkages for one year, as price volatility in the key raw material can potentially sink a few industries.

If the Centre can insist on the industry supplying steel at a fixed price for six-nine months for specified government projects, how can it let iron ore prices fluctuate so widely, he asked.

Moreover, he said, iron is a natural resource, and it belongs to the steel industry as much as it belongs to NMDC. The industry is in the doldrums as banks are not willing to provide extra working capital to tide over the iron ore price rise, thanks to the bad experience they have had with the industry, he said.

Iron ore constitutes 65 per cent of overall sponge iron making, given the fact that 2 tonnes of the material is required to produce 1 tonne of sponge iron.

Finished product

The Centre should levy loyalty and other cess on the finished product rather than the basic raw material to promote value addition, said Jhawar.

There are about 360 small units producing about 35 million tonnes (mt) of sponge iron, with Chhattisgarh and Odisha commanding capacity of 19 mt.

The situation has been rather ironical for MV Subba Rao, Chairman, KIOCL Ltd, who has to chart a plan to keep his plant running after receiving the best exporter award for 2017 from Mangaluru Customs.

With pellet export realisation at $105 (₹6,720) a tonne, almost equal to the iron ore price, Rao plans to buy two vessels of iron ore from NMDC, two vessels from private miners in Chhattisgarh and one shipment from Goa everyday for blending. This will be more cost-effective than buying five vessels from NMDC.

RK Goyal, Managing Director, Kalyani Steel and Vice-President of Karnataka Iron and Steel Manufacturers Association, said there is a tremendous shortage of iron ore supply in Karnataka even after the Supreme Court increased the annual production cap for the State from 30 mt to 35 mt. Mining companies are waiting for environment and other clearances for the enhanced production quota.

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