Sponge-iron makers fear further cut in coal supplies

VISHWANATH KULKARNI, THE HINDU BUSINESS LINE
NEW DELHI, APRIL 16:
Reeling under shortage of raw materials like iron ore and non-coking coal, sponge-iron makers fear further squeeze in supplies from Coal India.

This is in the aftermath of the Government directing the coal major to sign fuel supply agreements (FSAs) with power producers assuring committed supplies.

“At present, we are getting only about 35 per cent of the assured supplies from Coal India,” said Mr Deependra Kashiva, Executive Director, Sponge Iron Manufacturers Association (SIMA). With the recent presidential directive to Coal India, Mr Kashiva fears further diversion from sponge iron to power producers.

Concurring with Mr Kashiva, Mr A.S.Firoz, Chief Economist at Joint Plant Committee, under the Steel Ministry, said with FSA being forced on Coal India, they will be severely constrained to restrict supplies to the sponge iron sector.

Sponge iron also called as direct reduced iron (DRI) is produced using natural gas or coal. The sponge iron is used as a feed stock for making speciality steel.

As against coal requirement of around 32 million tonnes, the sponge iron producers get hardly some 11 to 12 million tonnes from Coal India. Only a few of the sponge iron makers are able to leverage the captive coal blocks allotted to them, while others are yet to develop such blocks due to land acquisition issues and infrastructure challenges. So the sponge iron units are forced to by coal through e-auctions or import, resulting in higher operating costs.

As a result, the production has become unviable and the output has been impacted, Mr Kashiva said. “Even the three gas based units are operating at a lower capacity,” Mr Kashiva said estimating a 20 per cent decline in total output at around 25 million tonnes for 2011-12. The installed capacity for sponge iron stands at around 35 million tonnes.

The declining trend in output is likely to continue in the current year as iron ore availability is still an issue, Mr Kashiva said.

The ban on iron ore mining in Karnataka and crackdown on illegal mining in Orissa has hit the iron ore supplies to steel-makers, including the sponge-iron makers.