Sponge iron makers are struggling with the rise of domestic iron ore and pellets prices. The dynamics of the Indian iron and steel industry has changed since the auctioning of several merchant iron ore mines at higher premiums, elevated the input costs of most producers.
The recent iron ore auctions in Odisha and Karanataka were deemed a positive move for the steel sector as it secured raw material supplies for iron and steelmakers. However, while these auctions have provided long-term captive access of ores to integrated steel companies, a significant side-effect of the same is higher input cost for non-integrated and small scale producers. Close to 76pc of India’s steel producers are non-integrated and procure ores from merchant mines. With the revision of mine holding and the new miners having committed higher premiums to the government, prices of iron ores and pellets have increased in the domestic market.
Sponge iron makers, who rely heavily on domestic supplies, are severely impacted by the rise in iron ore and pellets prices. These small scale producers are barely recovering from the loss of operations and cash flow crunch due to the COVID-19 pandemic. The Federation of Indian Mineral Industry has sought a government subsidy for the Micro, Small & Medium Enterprises (MSME) sector enterprises to ensure they get iron ore/pellets at a reasonable price to sustain production over the short-term.
“Fines prices have abnormally increased with the entry of new mines owners. Some mines are allotted to a few big steelmakers who are not merchant plants for pellet,” said a sponge manufacturer in South. “On the other hand, increased global demand and steady consumption of large domestic mills are driving iron ore prices on India, which is worrisome to small to medium DRI manufacturers, as input costs are compressing their margins.
The Davis Index for pellet sponge iron rose in Raipur by Rs800/mt to Rs15,800/mt del mills in the last two weeks, while the index in Durgapur rose by Rs700/mt to Rs15,500/mt del mills.