The suspension of Vedanta’s mining activities in Goa and the subsequent Iron ore supply disruption could possibly have a ripple effect on foundry grade Pig Iron availability in the country.
It may be noted here that Vedanta’s Pig Iron division stands as one of the largest in the country and contributes significantly to the foundry grade pig iron supply domestically.
The company had been sourcing almost 80 per cent of iron ore from its Goa mines while the remaining 20 per cent was being procured from Karnataka. Now, after the cancellation of mining leases in Goa by the Supreme Court of India, a bulk of Vedanta’s iron ore supply to its pig iron division would cease abruptly. According to the Goa Government the process of renewal of mining leases is a time taking process and it could be several months before fresh leases could be allotted.
The company’s total pig iron production in FY 2016 stood at 654,000 tonnes while output surged substantially in 2017 reaching 708,000 tonnes. Similarly, production in 9 months of FY 18 has already hit 465,000 tonnes.
According to official sources Vedanta has sufficient stock to last for February but beyond that iron ore inventories would begin to dry up. A similar trend in production of pig iron was observed when mining activity in Goa was suspended for more than a year in 2012. Production from Vedanta’s pig iron division took a sudden plunge and was reduced to about 308,000 tonnes, dropping to almost half.
The company produces steel grade and foundary grade pig iron in almost equal proportion. While a major part of its steel grade pig iron is exported its foundary grade product feeds the domestic industry.
Scrap demand may rise
Cast iron melting scrap is a direct replacement of Pig iron and therefore demand for scrap could see a gradual rise in the coming months.
Brief strain on supply
Although a sizable portion of the foundary grade pig iron supply would be withdrawn from the market there would not be a prolonged strain on supply. Foundary units in North India, which depend heavily on Vedanta, could see supply affected. According to experts there is a possibility that other producers may boost production to fill the void. There is also a possibility that Vedanta may opt for exported iron ore but this transition cannot be sudden as shipments take a few months to arrive.
Impact on Prices
The absence of a major producer like Vedanta might have a considerable impact on prices of Pig Iron. Prices for foundary grade Pig iron FOR Ludhiana have already begin to show signs of buoyancy reaching INR 32500-33000, up by around INR 500. The impact on supply can see the prices either rise further or remain supported. Overall steel prices may not be affected by this as usage of scrap could make up for the decline in pig iron supply.
Recommencement of NINL plant
Neelachal Ispat Nigal Limited which is the country’s largest Pig Iron producer had stopped production in the month of December last year owing to capital repair works underway presently. However, the plant is scheduled to commence operations by end of February and would be able to complete fine-tuning processes within a month. The recommencement of NINL would not affect the market for foundary grade pig iron as the company majorly produces only steel grade pig iron.
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