Sponge iron plants cut production and switch to annual maintenance due to falling demand and rising overhead
Hit by high prices for imported coal and falling demand for steel, India’s sponge iron factories – a raw material for steelmaking – are closing for annual maintenance or operating at lower capacities by reducing production of 20-50% in the main centers of Chattisgarh and Odisha. Some factories in Karnataka have already closed due to unremunerative operating costs.
Running at full capacity, the mills will suffer losses to the tune of ₹1,000-2,000/ton at current selling prices of ₹30,000-32,000 per ton (excluding Raipur).
Sponge iron manufacturers usually process lump iron ore or iron ore pellets, on which an export duty has been imposed at 50 percent and 45 percent, respectively.
According to trade sources, factories in Odisha are operating at 70-75% capacity, while in Raipur, Chattisgarh – the country’s sponge iron production hub – factories are operating at 70-80% capacity. Many factories in these two states are also considering closures for annual maintenance.
The situation is more worrying in Karnataka, where the majority of mills have closed shop or announced their closure for annual maintenance. Even those that work are reduced to 50% capacity or use a klin because “large scale operations are not viable”.
Some factories in Bengal and Jharkhand are doing slightly better thanks to export demand.
“Sponge iron plants have been affected by low demand from steel mills on the one hand and high operating costs on the other. Imported coking coal is still at high levels and Coal India is still prioritizing the needs of the power sector. So many factories announce closure for annual maintenance; or operate at reduced capacity to save costs,” said Deependra Kashiva, executive director of the Sponge Iron Manufacturers’ Association (SIMA). Activity area.
Merchant iron ore producers also announced production cuts.
For example, Karnataka-based pellet maker KIOCL has already announced the temporary closure of its 3.5 mntpa plant in Mangalore, saying it is no longer viable to continue operations after the government imposed restrictions. export duties on pellets.
Kashiva explains that buying is also weaker among merchants who are “holding back buying” in anticipation of better deals because “the buzz in the market is that prices will go down further.”
At the beginning of July, the monsoon will come into play, which will lead to a further weakening of demand. The monsoons are considered a lean period for the sector.
Indian metal producers have been hit hard by coking coal shortages. South African coal – used mainly by sponge iron makers – saw prices fall from $12/tonne last week (wow) to $315/tonne FOB as supplies slackened after the derailment last week last. However, mills say it’s “still at high levels” from the $80-100/ton levels that were trading a year ago.
“Iron ore prices are down and sponge iron realizations are also lower,” Kashiva added.
Prices for iron ore (chunks) and pellets have fallen on the domestic market in the past three weeks since the export duties were imposed. Average monthly prices of Odisha 63% Fe iron ore fines, in June (for two odd weeks) dipped to ₹3,850/ton from a high of ₹10,000/ton seen in July 2021.
Production at merchant pellet producers is expected to drop 10-15% this fiscal year, SteelMint analysis.
June 15, 2022