Indian sponge iron industry loses steam as problems multiply 374 times viewed.

Saturday, 09 Nov 2013

India has the rare distinction of being global leader in DRI production acquired primarily on account of bountiful iron ore reserves and unregulated production and environmental norms. However it is economy of production which guides the quest for volume. Steel production through sponge iron route is not only cheaper but even the set up cost of new plant is low on investment with relatively shorter gestation period. India is plush with critical raw materials viz., thermal coal and iron ore. Not surprisingly when the developed nations are switching over to more eco -friendly production process, Indian steel producers have found a safe haven in the mineral rich regions of Chattishgarh, Orissa and Karnataka. Propelled by the whirlwind of hiked GDP growth and insatiable demand by an emerging economy in infrastructure, construction and consumer durables DRI production touched 27.56 million tonnes in 2011 accounting for 43.4% of global production. In a way India was China in sponge iron production. However ever since the sheen has been lost with production slumping to 19.799 in 2012, accounting for 35.7% of global production and in 2013 till September the production has been only 13.931 million tonnes expected to end at 18.617 million tonne for about 29% of global production. The gradual climb down is a natural outcome of acute mess prevalent in the iron ore mining over the last 2 years. Marked by severe clampdown on iron ore mining and unending legalities iron ore production has slumped by 35% over the last 2 years from 207 million tonnes in 2010-11 to merely 135 million tonne in 2012-13 and expected to below 100 million tonne 2013-14. With no resolution in site of the mining issues in site as the CEC and the Supreme Court toil to put full proof mechanism in place shortage is likely to continue for some more time.

Thermal coal is another critical output in DRI production. Despite abundant reserves Coal Indian Ltd has been struggling to meet requirements of the power sector. As a result Sponge iron industry has been relegated to non-priority level with allocated volumes getting transferred to power generation. Import is an expensive option which will decimate margins by bloating cost in an already down market for finished steel. A plethora of historical problems remain alive viz 1. Non availability of hard iron ore lump, 2. High cost of natural Gas 3. Absence of good scrap Multiplicity of problems has taken toll of the capacity utilization which has dropped by 8% from 58.22% to 50.05% from 2011 to 2012. In the backdrop of unending list of problems faced by the sector the drop in production seems a natural outcome and it wont be long when the sector has painful demise lest concerted policy measures are enunciated in time. Some immediate thrust areas would be: 1. Resumption of mining in Karnataka where move already afoot to expedite production from category A & B mines. 2. Karnataka is expected to produce about 20-22 million tonnes of iron ore by February 2014 and touch 25 million tonne by end 2014. 3. Setting up of pellet plants to alleviate shortage of lump 4. Earmarking of thermal coal by signing stringent Fuel Supply Agreement (FSA) with Coal India 5. Setting up of Coal gasification units to replace natural gas for the production of synthesis gas. 6. Reduction in import duty on iron ore import Source - Strategic Research Institute (www.steelguru.com)