Sponge iron mills eye operations restart as iron ore prices set to cool off

Indian sponge iron mills — a steel making feedstock which had cut back production by 20-30 per cent or shut shop in some states following coal shortages and iron ore price spike — are looking to renew operations.

The move comes days after the Centre imposed an export duty in the range of 30-50 per cent on iron ore (pellets, lumps, ore and concentrate) and also announced a withdrawal of import duty on coal (coking and pulverised) in a bid to cool prices and reduce inflationary pressures.

Mills said they are waiting for the reduction in iron-ore prices to play out – over the next seven-odd days – before some of them restore production. Contracts for at least two weeks are reportedly booked and it is very unlikely that there will be a change in those prices.

Prices remain high

Coal prices though continue to be elevated.

“It will take at least a week or two for reduced price of iron ores to reflect in domestic markets. Imported coal though is down to $560/tonne at present, and lower than the previous highs of $700/tonne, is still at elevated levels. The import duty reduction may not have a significant impact on coal price though,” Deependra Kashiva, Executive Director, Sponge Iron Manufacturers’ Association (SIMA), told BusinessLine.

“Meanwhile, mills will look to renew production or bring on stream capacities that were closed down, as we now foresee some softening of input prices,” he added.

Sponge iron makers typically need lumpy ore or pellets on which export duties of 50 and 45 per cent have been imposed, respectively.

Coal shortage

Indian metal producers have been badly hit by coking coal shortage, especially in the absence of coal behemoth, Coal India supplying to non-power sector. Spot auction prices have been “abnormally high” too and mills had to rely on costly imported coal. Naturally, operations were turning unviable for smaller mills.

Sources in Jindal Steel & Power Ltd, which is running its sponge iron plants at 70 per cent capacity, said imports of coking coal were up 30 per cent over the last few weeks.

The situation is worse in Chattisgarh — the iron ore making hub. The state continues to face a low coal stock situation. Sponge iron players were said to be running at 60 per cent capacities. Of 35 million tonne of sponge iron produced in India every year, nearly 16 million tonne comes from the Central Indian state.

In Karnataka’s Bellary, some of the mills reportedly shut down for want of iron ore and high coal price. Smaller mills in West Bengal – which operate on a contract basis – too shut shop, sources said.

Price dynamics

Industry sources say that pellet prices, which were hovering at around ₹10,000 per tonne, could see a ₹2000–2500 per tonne decline.

Sponge iron mill owners say the bare minimum price at which they had been procuring coal was at ₹24,000 per tonne (including freight charges) and another ₹12,000 per 1.6 tonnes of iron ore and other costs. So any price below ₹36,000 per tonne makes production un-remunarative.

Steel makers say sponge iron prices are bound to fall as iron ore prices come down. And without coal costs going down further, it will continue to impact mill margins.

As on May 24, sponge iron prices in Raipur stood at ₹36,900 per tonne, a 2 per cent daily drop; while in Rourkela it stood at ₹32,700 per tonne, a near 7 per cent drop. In Raigarh, the price was ₹33,900 per tonne, down by nearly 3 per cent daily; while in Durgapur, it was down 6 per cent.

“If sponge prices remain at the current levels as they are in Raipur, mills will be able to book profits,” Kashiva added.

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