Sponge iron prices decline on weak demand from steel mills

By Paul Ploumis 06 Jul 2015 Last updated at 00:07:07 GMT

Sustained weak demand from the steel industry has pushed sponge iron prices down by 6 per cent in June to touch the cost of production. Experts believe the price of the raw material used to make steel will rebound after the lean season.

Data compiled by OreTeam Exim, a Delhi-based research firm, showed sponge iron prices fell in the Raipur market by Rs 1,100 since June 1 to trade currently at Rs 16,800 a tonne.

The fall was largely attributed to the proportionate decline in the prices of iron ore and coal.

"While generation of steel scrap from local sources has improved, imports have also jumped. Also capacity utilisation in the steel industry is trending down. These factors are resulting in the decline in sponge iron prices,” said Amitabh Mudgal, vice-president, marketing and corporate affairs, Monnet Ispat.

The price of iron ore (ex-Qingdao, China port) declined by 12 per cent since June 1 to trade currently at $55.63 a tonne, Bloomberg data showed. During the same period, the Richard Bay coal future price fell by 6 per cent to $59.20 a tonne.

"The April-June quarter is expected to remain weak for steel players, with raw material prices falling with a lag and domestic demand expected to pick up. Non-integrated players like JSW Steel are better placed over the next few years due to operational efficiency and continued focus on selling value-added products,” Kunal Motishaw, an analyst with Reliance Institutional Equity Research, said in a report. Sponge iron producers with integrated coal linkage are earning negligible profits at the current price. But producers that buy coal in auctions are breaking even as their production cost works out to Rs 16,500-16,800 a tonne.

"Steel demand is plagued by cheap exports from Korea and Japan. The recent 2.5 per cent import duty hike by the government is negligible. Immediately after the duty hike, the steel price corrected by $6. To protect the interest of steel producers, the government should hike the import duty. Once that happens, steel demand will grow and so will sponge iron,” said Mudgal.

Steel prices have declined since June 1. The benchmark MS ingot fell to Rs 28,600 a tonne from Rs 29,200.

Steel billet in Mandi Gobindgarh is quoted at Rs 28,700 a tonne now down from Rs 29,200 over a month ago.