• Increased sponge iron exports add to output growth
• Costlier domestic scrap makes sponge more viable
• DRI output to rise amid carbon emission concerns

Morning Brief:India's sponge iron production registered an 18% increase to nearly 52 million tonnes (mnt) in financial year 2023-24 (FY'24), reveals data maintained with BigMint. Volumes in FY'23 had touched around 44 mnt.

Factors which led to higher sponge iron production in FY'24

Rise in India's crude steel production:India's crude steel production increased 13% y-o-y in FY'24 to 144 mnt against 127 mnt in FY'23. The growth was propelled by a sharp increase in the share of production through the induction furnace (IF) route, which uses sponge iron as a key raw material for iron-making. As a result, DRI share in the hot metal mix rose 16% in FY'24 to 50 mnt compared to 43 mnt in FY'23.

Production through the IF route last fiscal grew 25% y-o-y to 50 mnt against 40 mnt in FY'23 while the electric arc furnaces (EAFs), which also use DRI along with scrap, showed 12% growth to 31 mnt (28 mnt). The basic oxygen furnace (BOF) route, in comparison, fell back a little with a mere 5% growth to 61 mnt (59 mnt). IF-EAF combined contributed around 82 mnt or more than 56% of the total 144 mnt last fiscal.

Sponge iron exports increase:Sponge iron exports increased 18% y-o-y to 1.3 mnt in FY'24 from 1.1 mnt in FY'23, a factor that also kept DRI production bolstered. The volume was boosted especially by neighbouring Nepal and Bangladesh. Exports to Nepal last fiscal were up 35% and to Bangladesh, by 5%. The increase in melting capacity in Nepal was primarily responsible for the trend. Nepal is increasing its DRI usage while lowering billet imports. The country's mills have increased melting capacities, and it appears manufacturing billets from sponge iron is more cost-effective than importing semi-finished. Nepal's increasing dependency on India's sponge iron is likely to continue into the long term. Bangladesh too has been using Indian sponge iron because mills there make steel through the electric furnace route. Lastly, the drop in export prices to Nepal also possibly facilitated higher imports. From an average $456/t CPT Raxaul in FY'23 these dropped to $386/t.

Domestic sponge prices more viable than scrap:Due to higher domestic scrap availability, imported scrap volumes and prices were both impacted last fiscal. However, sponge prices were more viable than those of domestic scrap, allowing India's electric furnace mills to fall back on the former rather than latter as feed. For instance, domestic melting scrap DAP Mandi Goindgarh dropped 11% y-o-y in FY'24 to around INR 39,805/t ($477/t) on higher availability. However, the sponge iron index (PDRI) ex-Raipur, was priced even lower at an average INR 28,089/t ($336/t) last fiscal, making it the preferred feed for furnaces.Outlook

Projections by BigMint indicate that India 's DRI capacity is set to increase further to touch 68 mnt by FY'25 with capacity additions under way.Higher pellet output is also seen driving up sponge production over the next couple of years.Moreover, sponge iron 's relevance will get enhanced in future, given the growing urgency of limiting carbon emissions as a tool for addressing climate change.