Medium and small steelmakers in India are feeling the warmth as costs of key inputs like sponge iron and imported scrap metal proceed to rise amid a correction within the costs of completed metal.
Called secondary steelmakers, these firms use sponge iron or scrap metal in electrical arc furnaces to make metal. This is not like giant, main steelmakers which function blast furnaces to purify iron ore after which use that for steelmaking.
A paucity of coal within the home market is pushing upwards the costs of sponge iron. Meanwhile, there has additionally been a squeeze on the supply of scrap metal, which is basically imported. This is pushing up the value of the commodity.
To ensure, costs of sponge iron and scrap metal, on common, have been greater within the months of March and April from present market charges, reveals knowledge from SteelMint.
However, costs of those uncooked supplies have been inching up since June, after a dip in May, whereas the costs of completed metal have been trending down after peaking in April. As a consequence, the steadiness of enter prices vis-a-vis completed metal costs has been off kilter, knowledge reveals.
For occasion, the ratio of common sponge iron value to benchmark hot-rolled coil metal value in April was 0.5, which elevated to about 0.63 in August. Similar is the case with imported metal scrap, which is the popular mode for steelmaking by coastal secondary models.
“Unless we get cheap coal, we can’t be viable,” mentioned the director of a Chhattisgarh-based secondary metal unit, requesting to not be named. “Even if Coal India gives 8% of its production to the secondary steel industry, up to 80% of our coal needs will be met. For the rest, we can use imported coal,” mentioned the director.
Another secondary steelmaker close to Mumbai mentioned there’s margin strain resulting from risky costs of scrap. “Right now, the market is very volatile. There is no direction (to the prices). Everyone is confused,” the unit’s head mentioned.
While no metal plant has needed to shut down as a result of margin squeeze, the scenario has put the enlargement and development of the sector in jeopardy, one of many individuals cited earlier mentioned.
The value of metal is intently linked to that of coal, which accounts for half of a steelmaker’s enter value. Large main steelmakers have relied upon imported coal, the costs of which have been dipping over the previous few months, serving to them maintain worthwhile margins regardless of declining metal costs.