Have Sponge Iron Prices Bottomed Out in FY16?

Domestic sponge iron prices dipped by 10% and iron ore lump & raw pellet by 18% in FY16 on Q-o-Q basis.

Sponge iron prices dipped by 10% Q-o-Q in FY16 against previous quarter. Continuous steep decline in steel prices amid subdued demand and weak global sentiment has led to fall in sponge prices. The reason behind weak global sentiment is rising threat of China’s low pricing strategy amid overcapacity alarm.

Sponge prices declined to INR 17,000/MT level in Q1 FY16 from INR 18,870/MT in Q4 FY15. While in the same quarter, iron ore lump (NMDC, 6-40 mm) prices declined by 18% to INR 3,050/MT against INR 3,730/MT in Q4 FY15 (royalty and other taxes extra). Similarly, raw pellet (Barbil, Fe 63%) prices came down 18% to INR 4,750/MT compared to INR 5,800/MT previous quarter (prices as per loaded to wagons).

Raipur 80 FeM C-DRI prices

Indian Sponge Makers under Pressure

Indian sponge iron makers are unlikely to sustain the current pressure due to increasing inventory. Market participants expect that iron ore and iron pellet prices may dip further by INR 200-300/MT during the second half of July’15, which will create further pressure on sponge iron prices.

On the other hand, sponge producers having capacity more than 500 TPD located in central and east India are mainly trying to hold their prices.

A pellet and sponge maker based in Raipur stated, “It is not possible to produce steel at such a low price. Buyers must be aware of the bottomed out prices and the fact that nothing comes for free.”

Sponge iron prices in central India went down INR 500-700/MT and billet INR 700-1,000/MT in a week’s time. Similarly in Durgapur and Rourkela, sponge price corrected by INR 300/MT and billet by INR 500-700/MT. However, south India based sponge iron market remained stable at INR 15,550-16,900/MT.

It seems that prices haven’t bottomed out yet and market participants anticipate further fall in sponge prices amidst sluggish demand and pressure on sponge makers.

C-DRI & P-DRI Prices as on 15 July’15

Prices in INR/MT
*78 FeM; #delivered price
Source: SteelMint Research