Costlier iron ore, coal pinch prices increase 4-5%

Sadananda Mohapatra / Bhubaneswar Mar 24, 2012,
Source : Business Standard
Sponge iron prices bucked the trend amid sluggish demand and increased four to five per cent during the past month, aided by rising iron ore and coking coal prices. Sponge iron, the raw material for steel, is currently quoted at Rs 24,000 a tonne at main hub Rourkela, up by Rs 1,500 from February.

“Demand for sponge iron has not revived. The prices are rising because of higher input cost,” Chandra Kejriwal, managing director with Rexon Strips Ltd, a sponge iron maker.

Sponge iron is produced from iron ore lumps or fines, by reducing oxygen content from it using either natural gas or coking coal as fuel. In Orissa, the largest producer of sponge iron, all manufacturers prefer coking coal as fuel, most of which is imported from Australia and Indonesia.

Though global coking coal prices have come down by as much as 40 per cent in the past year, Indian users did not benefit much as a weaker rupee restricted the price slide.

The latest Indian Port Association data, which shows coking coal imports through Kolkata and Paradip accounting for nearly 40 per cent of buying, halved to 500,000 tonnes in February from January.

Meanwhile, iron ore prices have also gone up in international as well as Indian markets, due to lower supply, and pushed sponge iron rates. Industry leaders said ore prices are set to rise if the government does not clear hurdles imposed in road transportation.

“I do not see a bright future for the sponge iron industry unless and until this transportation problem is resolved from the government side,” said P L Mohanty, vice-president of the Orissa Sponge Iron Manufacturers Association.

Though Orissa government has not officially restricted iron ore movements through trucks in the state. It introduced several layers of permission in November last year, including online vehicle registration, launched only recently after getting halted for about four months due to problems in data synchronisation among various departments.

Some industry leaders said the current price rise of sponge iron was unsustainable, as it was a reflection of temporary unavailability of raw material. But a few others said the rise is not going to crash suddenly as production of sponge iron had gone down substantially in a year.

“Orissa is currently producing one-fourth of sponge iron it was producing a year ago. So, the rates are going to stay until the supplies go up,” said N R Patnaik, general manager of MGM Steel, a leading producer.