Indian induction furnaces continue to enjoy higher conversion spread (margins) on global factors, SteelMint learned from Industry participants.
Current spreads between Sponge iron (P-DRI) and billet (Induction grade) stands at INR 13,000-13,500/MT (USD 200-208) which on an average hovers at INR 11,000-12,000/MT (USD 170-185). Similarly spreads between scrap and billet stands at INR 8,000-10,000/MT (USD 123-154) against an average spread of INR 6,000-8,000/MT (USD 92-123).
Induction furnaces play an important role in Indian steel making. According to ministry of steel data, out of India’s 100-101 MnT annual crude steel production, 22-23 MnT comes through Induction route.
Reasons for high spreads
Immune from Graphite Electrode (GE) Prices: Induction furnaces are immune from abnormal high cost of graphite electrode globally, which is currently a major concern for steel makers using EAF. According to participants GE prices have increased from USD 4,000/MT to about USD 12,000-15,000/MT in last few months. Considering consumption of 1.8 kgs for making per tonne of steel, cost has increased from USD 7/MT to USD 25-30/MT.
Higher Scrap Prices: Global scrap prices have also increased sharply on rising demand for high grade in order to reduce the consumption of GE. Since India’s scrap import is mere 5% of crude steel. India market has not been impacted with scrap prices in a big way.
Improved supply of sponge iron: Sponge iron supply has improved post resumption of Iron ore mines in the country. Sponge iron contributes about 25% of India’s crude steel production.
Improved export demand: Indian induction grade billet has become popular in SE Asian market after falling Chinese billet supplies. Indian billet exports increased by 59% in 2017.
According to industry participants, margins presently are quite healthy and it is for this reason that manufacturers are maximizing production utilization to capitalize on it.
Below is the required & actual conversion gap analysis
| Markets | Sponge P-DRI (78-80 FeM) | HMS Scrap (80:20) | Billet (100*100mm) | Current Conversion | Required Conversion tentatively |
| Ex-Raipur | 19,600 | – | 32,700 | 13,100 | 12,000 |
| Ex-Durgapur | 18,900 | – | 32,500 | 13,600 | 12,000 |
| Ex-Rourkela | 18,700 | – | 32,100 | 13,400 | 12,000 |
| Ex-Ahmedabad | – | 25,900 | 34,100 | 8,200 | 7,000 |
| Ex-Jalna | – | 25,200 | 33,800 | 8,600 | 7,000 |
| Ex-Chennai | – | 25,900 | 36,000 | 10,100 | 8,000 |
Prices in INR/MT & Excluding 18% GST
Sources: SteelMint Research
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