The increasing price of South African thermal coal, which is widely used by Indian sponge iron manufacturers, is squeezing profit margins of sponge makers.
South African coal (5500 NAR, RB2) prices have crossed US$ 82/t CIF India, recently (up by US$ 20-23 in a month time).
If these prices persist, either sponge makers will try to pass on to the consumers or cut down their production.
While domestic steel demand growth remains low, it is unlikely that sponge manufacturers may pass on the additional cost. Above that, significant quantities of scrap have been booked by steel mills based on coastal region for which deliveries will be made in November.
South African Coal Imports Vs Prices
India imports about 18.8 MnT of thermal coal from South Africa, which is majorly used by sponge manufacturers. According to data maintained by SteelMint, India imported 10.7 MnT during Apr- Sep 2016 , which has decreased 3.52% as compared to last year during same period.
Sponge Iron Prices in India
Sponge iron prices in India are currently trading at INR 12,600-14,800/MT (US$ 190- 220) on ex-works basis. Sponge iron contributes about 25% of India’s total crude steel production. Any fall in production may lead to more imports of scrap.
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