Companies

Sponge iron mills cut production, go for annual maintenance due to lower demand, rising overheads

Abhishek Law | | Updated on: Jun 15, 2022
In Karnataka, the majority of mills have shut shop or announced closure for annual maintenance

In Karnataka, the majority of mills have shut shop or announced closure for annual maintenance | Photo Credit: B_M_Siddalingaswamy

Hit by high imported coal prices and lower steel demand, Indian sponge iron mills—a steel making feedstock—are either closing for annual maintenance or operating at lower capacities by cutting back production by 20–50 per cent across prime hubs of Chattisgarh and Odisha. Some mills in Karnataka have already shut shop because of unremunerative operating costs.

Operating at full capacity means mills will be incurring losses to the tune of ₹1,000-2,000/tonne at current selling prices of ₹30,000–32,0000 per tonne (ex of Raipur).

Sponge iron makers typically process lumpy iron ore or iron-ore pellets, an export duty on which has been imposed at 50 per cent and 45 per cent, respectively.

Staring at closure

According to trade sources, mills in Odisha are operating at 70–75 per cent of capacity, while in Raipur, Chattisgarh – the country’s sponge iron producing hub – mills are operating at 70–80 per cent of their capacities. Many mills in these two States are also mulling closures for annual maintenance.

The situation is more concerning in Karnataka, where the majority of mills have shut shop or announced closure for annual maintenance. Even those operating are down to 50 per cent capacity or using one klin since “full scale operations are not viable”.

Some Bengal and Jharkhand mills are faring slightly better with export demand coming in.

“Sponge iron mills have been hit by poor demand from steel makers on one hand and high operating costs on the other. Imported coking coal is at elevated levels still, and Coal India is still prioritising power sector requirements. So many mills are announcing closure for annual maintenance; or operating at reduced capacity to see through costs,” Deependra Kashiva, Executive Director, Sponge Iron Manufacturers’ Association (SIMA), told BusinessLine.

Merchant iron-ore producers have also announced production cuts.

For instance, Karnataka-based pellets maker KIOCL has already announced a temporary shutdown of its 3.5-mntpa plant in Mangalore, saying it is no longer viable to continue operations after the government slapped export duty on pellets.

Kashiva explains that buying is also lower by traders who are “holding back purchases” anticipating better deals since the “buzz in the market is that prices are going to fall further”.

Beginning July, monsoon will come into play, and this will lead to a further weakening of demand. Monsoons are seen as a lean period for the sector.

High Overheads

Indian metal producers have been badly hit by coking coal shortages. South African coal – used mostly by the sponge iron makers – saw its prices fall by $12/tonne last week (w-o-w) to $315/tonne FOB as supplies eased post-derailment last week. However, mills say, this is “still at elevated levels” compared to the $80-100/tonne levels that were being traded at a-year ago.

“Iron ore prices are down, and sponge iron realisations are also lower,” Kashiva added.

Prices of both iron ore (lumps) and pellets have fallen in the domestic market over the last three weeks since the imposition of export duty. Average monthly prices of Odisha iron ore fines of Fe 63 per cent, in June (for two-odd weeks) plunged to ₹3,850/tonne from a peak of ₹10,000/tonne seen in July 2021.

Output from merchant pellet producers is expected to fall in this financial year by 10–15 per cent, SteelMint analyses.

Published on June 15, 2022
COMMENTS
  1. Comments will be moderated by The Hindu editorial team.
  2. Comments that are abusive, personal, incendiary or irrelevant cannot be published.
  3. Please write complete sentences. Do not type comments in all capital letters, or in all lower case letters, or using abbreviated text. (example: u cannot substitute for you, d is not 'the', n is not 'and').
  4. We may remove hyperlinks within comments.
  5. Please use a genuine email ID and provide your name, to avoid rejection.

You May Also Like

Recommended for you