Sponge prices gain Rs 700-1200/mt in a week. Prices might not hold -Experts

 Saturday, July 16,

On the iron-ore front there are multiple problems on one hand the cost of iron ore has gone up at the same time the government is cracking down on various mines because of multiple issues like illegal mining and environmental concerns. This has created acute shortage of iron ore which in turn is keeping a tab on the production levels of steel mills. Also there’s no sign of government or the Supreme Court relenting on its stand to keep the mining industry in check.

Government of Karnataka had imposed a ban on export of iron ore form the region and now the Supreme Court is contemplating a complete ban on iron ore mining in the Hospet-Bellary region on account of environmental damaged causes to the forests because of commercialization of iron-ore. This if comes in to effect will hurt the steel industry especially in the southern part of the country. All the three south Indian states depend heavily on the Hospet and Bellary region for iron ore.

Signs of stress have started to show on the firms based in southern part of the country. Sponge which was available in Bellary at Rs 18700-800/mt has shot up to Rs 20000-20200/mt in a matter of 10days time. Even at these prices buyers are finding it difficult to procure sponge. Even in Hyderabad the condition is the same DRI was quoted at Rs 20000/mt (+1000) since the markets opened after Telangana issue. Since it is the monsoon period demand for steel is inherently weak and prices usually correct during the season but higher DRI prices have made it all the more difficult to cut prices further. As a result the buyers are shying away and manufacturers are not even able to sell enough goods to cover costs.

Condition is no different in the remaining part of the country. In Raipur the prices have gone up by Rs 900/mt and are now quoting at Rs21500-600/mt. If the sponge continues to cause problems then it will make steel making for mini mills and non integrated producers unviable.

Market participants are now of the point of view that even though the problems in the iron ore department are real but still manufacturer wont go beyond a certain point to procure sponge, and they believe that prices of DRI will consolidate at these levels or may even come down in coming days.