December 2011 - SIMA

Raw material availability:Basic raw material for EAF/IF steel making is providedby the sponge iron industry, which includes coalbased and gas based DRI manufacturers. However,basic raw material insecurity will remain and as thedirect out come of that Sponge iron industry willcontinue to face the uncertainty of raw material likeiron ore, coal etc. until some sustained governmentpolicy is drawn in favor of this particular industry orindustry players form a strong consortium to handleraw material issue jointly.The expected growth in steel making from DRI isshown in Break up of the Projected Crude SteelCapacity shown in the following Table:Break up of the Projected Crude Steel Capacity (in ‘000 MT)Production origin Year : 2011-12 Year : 2016-17 Year : 2019-20Crude Steel from Hot Metal 54000 96000 120000Crude Steel from DRI 29700 52800 66000Crude Steel from Scrap 6300 11200 14000Total 90000 160000 200000Source : MECON published DataConsidering the projected capacity of steel makingusing DRI it could be worked out that, Sponge ironIndustry alone, to feed IF/EAF, will require to producerequired DRI (Assuming coal based DRI productionat approximately 40 mil. MT per annum by year 2016-17), almost 70 mil. MT of Iron ore or substitute andmore than 60 mil. MT of coal as reducing agent inDRI Kilns by the end of next five year plan i.e. in theyear 2016-17. The basic raw material scenario asexpected to emerge in future is elaborated as follows:Iron Ore: Presently annual domestic demand of ironore stand at almost 95 mil. MT (Lumps consumptionis almost 85 mil. MT and rest are fines), growing atCAGR of 12%. India is the fourth largest producer ofiron ore, producing around 220 mil MT iron ore in Fy10. The country takes the sixth position in terms ofworld-wide reserve but due to insufficient exploration,has a very lower Reserve : Production (R/P) ratio of111 compared to other producing countries like Brazil(184), Australia (134). Selective exploitation of highgrade reserve (64% and above) in the past globaldemand buoyancy led to the present deterioration inquality – low grade generating almost 55% fineswhich is not used by Indian steel manufacturer andultimately, land on ships for exports in large scale.Sponge iron producers thus are dependent on themercy of private miners for supply as most of themare not allotted captive mines and compelled to payhigh prices for inferior quality (Fe content of 60% oreven lower mixed with fines and dust in excess ratio).Linkage of domestic price to international priceescalates the hardship further. However, recent spurtin investment in setting up pelletization plants to usefines is expected to give some hope of relief fromthis uncertainty.Coal: Presently sponge iron industry requires almost30 mil. MT of non-coking coal of “B” or “C” grade, asin Fy-10, against supply of about 20 mil. MT (including5-6 mil. MT of captive mines allotted to a few largeroperators) leaving a big short fall. In the process ofcoal based sponge iron production, for each MT ofsteel, coal requirement is almost 1.6 MT, if quality isgood. Due to scarcity, operators often forced to useinferior coal incurring higher non-sustainable cost ofproduction, leaving scanty margin or negative.Gas: Non-availability in sufficiency and irrationalpricing led to uncertainty and prevented any furthercapacity addition in gas based DRI production in thelast several years. Things are improving now withmore discovery, enhancement in pipe distributionnetwork and could encourage further capacityDECEMBER-2011/14