Several sponge iron plants have shutdown in South India as the state government lifted section 11. This means the state will stop buying electricity generated by private players under short term open access deal.
Karnataka state government has lifted section 11 in the state in second week of Jun’16. This means that the state government will not purchase power produced by the private producers (except those who have long and medium term contracts). This will hit sponge iron producers in the state, who were generating power through waste heat recovery. Several sponge iron plants, which were making decent profits by selling power to state grid at higher prices, now have to sell it on exchange at lower prices.
Sponge iron prices have gone up in southern India. Current prices for C-DRI (78 FeM) are assessed at INR 11,700-11,800/MT (excluding Excise @ 12.5%) on ex plant basis, which were at INR 11,400/MT in starting of the week.
Similarly, P-DRI (78 FeM) prices are assessed at INR 11,200-11,300/MT (excluding 12.5% Excise) on ex-plant basis, which were INR 10,900/MT early this week. There are about 70-80 sponge plants in the state having an annual production capacity of around 4 MnT.
Market players added that plants will remain on maintenance for some time as the government has denied purchasing power from them due to surplus availability of power in the state. Manufacturers used to sell power to state government in order to cover their variable cost.
Manufacturers also confirmed that there are 5-6 plants, which have closed their operations, resulting a production loss of 1,500-2,000 MT sponge per day.
Maharashtra is one of the major buyer of Karnataka’s sponge iron. Out of total sponge production in Karnataka, around 40-45% material is being supplied to the state. Closing of plants will create some shortage and buyers may take position in imported scrap.
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