Davis Index: Market Intelligence for the Global Metals and Recycled Materials Markets

Sponge iron prices could remain elevated for the next 4-6 months amid a shortage of ore says Abhishek Agrawal, Executive Director of Hira Group in an exclusive interview with Davis Index. Highlighting challenges faced by the industry he voiced the need for regulation of iron ore pellet exports.


Could you share your insights on iron ore availability after re-auction?

Indian steel industry stares at an uncertain future amid an acute shortfall of iron ore, primarily due to delays in re-auctioning of mine leases that expired in March 2020-2021. The subsequent reauction is held back due to the COVID-19 pandemic. This shortfall is likely to continue for another 4-6 months due to which mills are forced to purchase whatever is available in the market. Several private iron ore mines are supplying low-grade iron ore, while the prices continue to rise.


Since Hira Group owns captive mines in Chhattisgarh we are not as impacted by the tight supply of iron ore compared to other sponge iron units who are dependent on government and third-party mines. Of the total 2.3-2.4mn mt consumption, 70pc of our iron ore requirement for the pellet plant is fulfilled by our own mines and the rest 30pc is fulfilled from either local fines achieved by crushing Directly Reduced Caliberated Lump Ore (DRCLO) bought from the local market or purchasing from National Mineral Development Corporation (NMDC). Previously, we sourced iron ore from Orissa, but due to rising prices along with quality and supply constraints, we had to stop purchases.


In addition to this, we have also started procuring iron ore from Bhilai Steel Plant’s Dalli-Rajhara mines in Chhatisgarh after it started auctioning almost 0.15mn mt of iron ore of grade 60 and 61 every month.


What is your annual sponge production capacity? Are you looking for expansion?

Currently, Hira Group’s annual sponge production capacity is 495,000mt and we look to expand to 5.94mn mt by the end of the current fiscal.


What supply constraints have you faced due to taxation or government policies? Do you seek any change in government policy or any help for the industry?

I applaud and appreciate the government policies pertaining to the supplies of raw material in Chhattisgarh. Current policies like the implementation of e-way bill and e-pass for interstate movement of goods to ensure faster supplies has streamlined the process of procurement and supply of raw materials. But there is always room for improvement, I suggest that the production levels of iron ore in Orissa to reach the pre-auction levels and the supply chain to be streamlined for the same to avoid any shortages ahead. 


What is your forecast on supply and demand of Sponge? Also, to which regions do you supply Sponge and where is the maximum amount of buying happening, in which state or city?

India being the biggest producer of coal-based Direct Reduced Iron (DRI) and considering the capacity expansion plans in the secondary sector, steelmaking via sponge iron route is cheaper than the blast furnace process. So the country is likely to maintain the top position. 

Majority of the sponge is consumed within Chhattisgarh as there are a lot of induction furnaces with low sponge capacity. The group also supplies to Jalna and Hyderabad.


Could you share your estimates on Sponge pricing, where do you see the market heading?

Currently, the sponge iron lumps are at Rs25,500/mt, while pellet sponge iron prices are at Rs24,500/mt and they are likely to achieve an all-time high beyond Rs27,000/mt, which was hit back in 2008 when China’s iron ore demand was at its peak.


Which is more preferred by most buyer’s, lumps or pellets?

The general ratio for mining in India is 70pc fines and 30pc lumps. Although people prefer sponge iron lumps depending on their melting capacity, but eventually without the sponge iron pellet industry which uses iron ore fines, the sponge industry would not survive. It all boils down to the prices at which, both, the pellets and lumps are available. However, sponge iron pellets cannot be ruled out as it is part of the sponge industry.


What other raw materials do you import or purchase domestically for the sponge plant? 

We currently import almost 500,000mt of Rb1 coal annually, directly from South African miners. We switched to imports after facing supply disruptions and quality issues with domestic suppliers. 


Godawari was actively exporting pellet in the first two quarters of FY2021. Are you still exporting or are focusing on the domestic market?

Godawari Power and Ispat has switched its focus to cater to the domestic requirement amid a shortage of iron ore from Odisha along with higher international iron ore prices. But at the same time, the company has not closed its doors for exports. The company usually exports to Southeast-Asian countries like Malaysia, China and Indonesia. We are also exploring opportunities in the Middle East and are expecting to diversify our overseas sales.


Godawari has started exporting wire rod to Nepal since October. Are you focusing on other markets too? Any recent deals?

Godawari Power and Ispat’s wire rod capacity is divided in two mills, of which one mill solely focuses on exports to countries like Sri Lanka, Mombasa in Kenya, while Nepal being a continuous effort. Until now, we have been able to export 10,000mt per month and are aiming at 15,000mt per month. On Nov 24, we concluded a deal at $525 cfr Nepal levels loaded to rake.


Sponge price levels are at an all-time high? What factors drove prices? 

There are two major reasons which drove prices up, firstly, exports from India specifically during the pandemic when the domestic demand was weak. Primary producers preferred to export to keep themselves afloat during the pandemic. As the domestic demand started to recover, these producers sold the material at higher prices to domestic end-users and at the same time continued exporting to offshore markets to keep prices firm as well as maximize sales volumes. This trend is likely to continue for the next few months.

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