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Sponge iron prices peak

Mumbai, March 2: Sponge iron prices are defying gravity. Having firmed up to new highs in the past couple of months, they show no signs of capitulating. Many industry watchers say a slide could be months away.

Prices of the raw material used in the steel industry are being quoted in excess of Rs 7,000 per tonne, a rise of Rs 500 per tonne over the levels prevailing last month. It is also a sharp increase over the average net selling price, which has ranged from Rs 4500 per tonne to Rs 5100 per tonne over the past four years. The surge has been attributed largely to a shortage in scrap and reduced availability of non-coking coal.

Those familiar with the way prices behave in this sector reckon that sponge iron is likely to stay firm in the next two quarters, driven up by brisk Chinese buying and encouraging conditions in the steel industry.

“There is good demand coming from China, which is contributing significantly to raise prices. Since domestic demand is also strong, prices should remain firm over the next few months,” says Jindal Steel & Power (JSPL) vice-president Sushil K. Maroo. His company is one of the major coal-based sponge iron producers in the country, along side Essar Steel, Ispat Industries and Vikram Ispat (a division of Grasim Industries). The last three firms use gas to make the metal.

Figures available for the first half of this fiscal show a growth of more than 20 per cent in production, pegged over 3 million tonnes. Analysts believe that the increase has been more pronounced in coal-based sponge iron.

As industry conditions remain favourable, its impact, sources averred, is likely to be seen in the balance-sheet of the producing companies this fiscal. This is in sharp contrast to the scenario that prevailed two years earlier when prices were under pressure amid lower demand for finished products and large supply of this intermediate.

However, the steel industry is presently in the grip of a bullish phase with yet another round of price increase expected next month.

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