|Chennai||Rs. 24020.00 (-0.17%)|
|Mumbai||Rs. 25020.00 (0.28%)|
|Delhi||Rs. 24450.00 (0%)|
|Kolkata||Rs. 24600.00 (-0.32%)|
|Kerala||Rs. 24050.00 (0%)|
|Bangalore||Rs. 24160.00 (-0.17%)|
|Hyderabad||Rs. 24030.00 (-0.12%)|
Steel mills’ dependence on pellets as a raw material is set to increase by at least 13 percentage points in the next two years, due to shortage of high-grade iron ore in India.
Data compiled by OreTeam Exim, a Noida-based research company, shows 68 per cent of steel production capacity would depend upon pellets as the only source of raw material in the next two years. Currently, 55 per cent of steel is produced through pellets in the country.
In terms of crude steel production, all captive mills are now setting up their pellet plants and their utilisation ratio for pellets is close to 70 per cent on an average. Essar and JSW have nearly 100 per cent utilisation capacity of iron ore fines after being converted into pellets. Steel Authority of India Ltd (SAIL), Tata Steel and Rashtriya Ispat Nigam Ltd (RINL) are at 75-80 per cent’ SAIL and RINL would, in due course, get their own pellet plants. So would NMDC, for the same reason.
“This is because of the lack of lumps (high grade of iron ore, with over 63 per cent of iron content). Since the Supreme Court suspended excavation of iron ore in Karnataka, followed by investigations on existing mines in Goa and Odisha, mining activities have came to a grinding halt,” said Prakash Duvvuri, head–research, with OreTeam.
Consequently, independent steel mills that were using only high-grade lumps for manufacturing steel have reduced their capacity utilisation. Independent mills do not have integrated iron ore mines’ support and, hence, depend on the open market for raw material procurement. Large steel mills, in contrast, enjoy the backing of ore mines and did not face a supply squeeze.
In the absence of mining activity, the availability of lumps remained an issue. Due to the government’s sudden increase in export duty to 30 per cent and rail freight charges almost 10 times higher for exports than local charges, shipment has become unviable.
“Consequently, low grade iron ore continues to be available to the tune of around 150 million tonnes, produced and stocked before suspension of mining in various states,” said R K Sharma, secretary general of the Federation of Indian Mineral Industries.
To utilise this stockpile, steel mills are expanding through backward integration, by setting up pellet plants to convert it into pellets with around 95 per cent of iron content. Meanwhile, the demand for pellets has increased from steel mills, resulting in its price rising uninterruptedly. This is likely to continue, on rising steel production.
India’s crude steel production is estimated to increase to 95 mt by 2015. This indicates close to 100 mt of iron ore would be required for active production, taking into account utilisation capacity at 60 per cent and direct crude steel production from fines and lumps at 70 per cent. The dependence of the direct steel sector on pellets has also been increasing, following a majority of captive steel plants setting up their own pelletising facilities.
Also, mills’ dependence on sponge iron has increased from less than 20 per cent in 2010 to more than 45 per cent in 2012. Analysts forecast their dependence on sponge iron to rise to over 65 per cent in the next two years.