Sponge Iron Prices Continue To Fall

Despite buyers' apprehension on placing fresh orders ahead of the monsoon season, prices of sponge iron, an important raw material for steel manufacturing, is unlikely to decline from its current levels.

Sponge iron or direct reduced iron, being quoted at Rs 18,000 per tonne, have seen around 14 per cent fall in the last one month because of subdued raw material prices and market switching to need-based buying instead of creating inventory.
"An independent sponge iron producer cannot afford selling below current levels," said Amitabh Mudgal, general manager (marketing), Monnet Ispat, one of the largest sponge iron suppliers to steel producers.

At least 1.5-2 tonnes each of iron ore and coal are required to produce one tonne of good quality sponge iron. Although the price of iron ore has declined by 10-12 per cent in the last month, price of coking coal is continuously moving upwards.
Iron ore fines are quoted in the range of $90-100 per tonne. Coking coal has risen from $130 to $300 a tonne in the last three to four months, while coke has doubled to $600 a tonne since the beginning of the year.

At a minimum margin of 10-15 per cent, the current level is the cut-off price for an independent producer. Therefore, there is hardly any room for sponge iron prices to fall further, said Mr Mudgal.

Sponge iron producers operate with a margin of 13-18 per cent, depending upon the cost of iron ore and coal supplies.

On Monday, buyers booked only to meet daily needs anticipating the price to decline. Those who are waiting for a fresh bottom level would be trapped, added Mr Mudgal.

Placing multiple orders for future consumption is a common phenomenon for the sponge iron industry. But, because of a price decline in recent past, traders are abstaining from multiple orders. Therefore, the pipeline inventory has been disrupted abnormally.
India produces about 50 million tonnes of steel annually, while consumption stays around 51 million tonnes. He said domestic buyers remained untouched despite contracted value of iron ore between Indian exporters and Chinese importers going down from $175-180 a tonne last November to $140-145 now.

Chinese traders slowed down orders when prices start moving up. As a consequence, the pressure of stock clearance forced exporters to bring down prices. "Hence, the Chinese contracted price cannot be a correct indicator for real market sentiment," said Mudgal.

India produced 16.28 million tonnes of sponge iron in 2006-07, of which, 5.26 million tonnes was contributed by gas-based variety and 11.01 million tonnes by coal-based one.

Source: Business Standard

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