Low demand, high input cost hit pig iron makers

Sadananda Mohapatra / Bhubaneswar May 11, 2012,
BUSINESS STANDARD
Pig iron producers have come under pressure due to poor demand from foundries and high cost of raw materials like iron ore. This may lead the prices to stagnate at current levels till July-end, traders and industry experts said.

Though demand from steelmakers, the largest consumer of pig iron, has been good, supplies to foundries have slipped in the past couple of months, they added.

“Pig iron demand from electric arc furnaces has been good in the past couple of months, as against the falling demand from foundries. So, I think the rates should stablise at the current level, at least for the next couple of months or so,” said Reeta Singh, managing director of Mesco Steel, a pig iron producer.

Pig iron rates are currently quoted at Rs 25,000 to Rs 26,000 a tonne in the domestic market, up a marginal Rs 300 in the past few months. Producers said they wanted to raise prices because of higher iron ore and coking coal rates, but could not do so, anticipating contracting demand.

“We raised the pig iron rates due to escalation in input cost, but we have received no major booking order since then,” said J P Mohapatra, marketing manager, Neelachal Ispat Nigam Ltd (NINL).

NINL, jointly promoted by MMTC Ltd and the Odisha government, is the biggest producer and exporter of pig iron in India since 2004-05. India produces around 5.5 million tonnes of pig iron every year.

Pig iron is the solid form of hot iron metal, obtained by smelting iron ore with coke. Though most integrated steel plants use this intermediate for steel making, they also set aside some quantity to sell in the domestic as well as international markets, to be used in electric arc furnaces and in foundries.

Foundries, which make automobile and other industrial moulds, said they are now buying less pig iron because of declining demand from the automobile industry.

“Automobile makers have slashed casting orders recently, as they have huge inventory due to poor car sales witnessed in past three months. We have cut our monthly output by a third to 2,500 tonnes,” said Pravin Vilas Patil, senior marketing manager with Ghatge Patil Industries in Kolhapur, Maharashtra.

Even the export market did not come to the rescue of pig iron makers, as global economic uncertainties weighed on them. In 2011-12, exports of NINL contracted by a fifth to 328,771 tonnes on lower shipping orders from South Korea, Taiwan and other Southeast Asian nations. However, a weaker rupee supported profit margins, exporters said.

“The export volume has come down due to global economic crisis, but we are making good money due to the rupee depreciation,” said Tapan Kumar Chand, commercial director with Vizag Steel.

In dollar terms, pig iron rates have come down by $70 to $80 a tonne to trade at $468 a tonne in the past two quarters. Meanwhile, the rupee has slipped from 49.50 to a dollar in February to 53.43 recently, offsetting the losses incurred by drop in sales volumes, he added.