India: Furnaces Increase Sponge Consumption to Reduce Input Cost

Electric arc furnaces or Induction furnaces based in coastal India are more inclined towards melting sponge iron rather than high cost scrap to reduce input cost.

As per SteelMint’s assessment, in a month’s duration Indian Sponge iron prices fell by INR 1,500-2,500/MT (USD 21-36), however melting scrap prices in coastal regions (south & western India) dropped merely by INR 800-1,400/MT (USD 11-20). This has attracted ingot/billet makers to raise sponge iron proportion to reduce input cost.

As per one of the largest Rebar producers (Hot rolling mill) located in Wardha (Maharashtra) they have raised sponge iron consumption by 10-15% to 60-65% which was earlier about 50% and remaining was melting scrap.

Further as per industry leaders, on an average there should be price a gap of around INR 3,000/MT between Sponge iron & HMS Scrap landed cost, which is currently hovering at INR 4,000-5,000/MT, specifically in South & Western India, where mills largely melt scrap. Hence the cheaper landed cost of sponge iron is compelling mills to raise procurement.

In present offers, the landed cost of Sponge P-DRI (FeM 80%) in Maharashtra would be around INR 18,000-19,000/MT, while melting scrap offers in the state reported at around INR 23,500-24,000/MT. Both are excluding 18% GST.

Similarly in Southern region, Chennai where local melting scrap offers hovering at INR 22,500/MT, meanwhile Sponge P-DRI (FeM 80%) landed cost reported at near to INR 18,000-18,500/MT; excluding 18% GST.

What May Happen?

Industry participants believe, if the large proportion of furnaces will opt this, than the local melting scrap offers may come under pressure and ultimately sponge iron market will find support.

However they added that as the sponge iron availability is healthier in Indian domestic market, so there will be no immediate impact on price range.

Reference prices as on 19th June 2019

Basic prices in INR/MT & excluding of GST @ 18%
Source: SteelMint Research