India: Sponge iron production increases 9% in FY'22 on higher crude steel output

• Higher crude steel output pushes up sponge production
  
  
• Exports jump 25% on the year
  
  
• More capacities to come onstream in next four years
  
  

India's sponge iron production in the just-concluded fiscal year (April 2021-March 2022) was recorded at 37.55 million tonnes (mnt), data collated by SteelMint shows. Production volumes rose by 9% compared to 34.59 mnt seen in the previous fiscal (FY'21).

Out of total sponge iron production, the share of pellet-based DRI (P-DRI) was roughly 65%, while the rest was produced from iron ore lump.

AM/NS India top producer

AM/NS India emerged as the top producer of sponge iron in FY'22 with 5.34 mnt, an increase of 15% y-o-y. In second spot was JSPL with 2.54 mnt (up 14%), JSW Steel with 2.06 mnt (up 15.7%) and Tata Group with 1.49 mnt (up 32%) were the other leading producers.

Higher crude steel production

Sponge iron production in the fiscal ending March 2022 rose due to higher crude steel production. India's crude steel production stood at 118 mnt in FY'22 compared with around 102 mnt in the previous fiscal*. The COVID-19 pandemic and the subsequent lockdowns in 2020 severely impacted sponge iron production in FY'21. Therefore, sponge iron output increased on the low base of FY'21.

Apart from the significant growth in crude steel production, domestic iron ore and pellet production too rose. India's iron ore output in FY'22 stood at 250 mnt, hitting an all-time high and rising by 23% y-o-y, as per SteelMint data. Likewise, the country's pellet production also touched the historic high of around 77 mnt in the period under review.

Price trends

Domestic sponge iron prices remained firm in FY'22 due mainly to high global and domestic coal prices amid supply shortage. In addition, ferrous scrap prices remained strong too, as lower-than-usual scrap collection worldwide during and after the pandemic meant that generation could not keep pace with the sharp surge in steel production during the post-pandemic economic recovery.

SteelMint's assessment for sponge iron (P-DRI) in Raipur, central India, averaged around INR 31,720/t exw in FY'22 compared with INR 21,200/t in FY'21.

The surge in prices of iron ore and pellets also boosted sponge iron prices.

Exports rise

India's sponge iron exports were recorded at 0.69 mnt in FY'22, with volumes jumping by 25% y-o-y compared to 0.55 mnt in FY'21.

Nepal was the largest importer at 0.37 mnt, followed by Bangladesh at 0.28 mnt during this period.

Demand from Nepal remained strong on rising melting capacities in that country. Notably, Nepal's sponge iron imports from India in FY'22 more than doubled compared to FY'21.

That apart, the Nepal government also supported producers by slashing customs tax and excise duty on sponge imports to zero in FY'22 from 5% previously. This encouraged induction furnace steel producers to import more sponge iron.

Outlook

India's annual sponge iron production capacity is currently assessed at 59-60 mnt. About 20 mnt of capacity expansion proposals have received government approvals in the form of environment clearance (EC) and consent to establish (CTE) between January 2021 and March 2022.

These projects are expected to be completed in the next three-four years.

India's sponge iron production is expected to increase to around 40 mnt in the current fiscal (FY'23), SteelMint notes. In the long-term, production is expected to reach 45 mnt by FY'25 in line with increasing crude steel capacities.

As per SteelMint assessment based on the route-wise contribution to total crude steel production, domestic demand for sponge iron is expected to increase to 43 mn t in 2025 and 50 mn t in 2030. Out of total crude steel production in FY'22, the BF-BOF route had a share of 45% while the electric-induction furnace route contributed 55%.

However, SteelMint understands that the share of the BF-BOF route in national crude steel production is likely to increase to 55% by 2030 and the share EAF-IF route is expected to decline correspondingly. Therefore, the production of sponge iron is unlikely to increase commensurately with the expected surge in crude steel production.

One key reason for this, of course, is sustainability-related concerns around the polluting coal-based DRI production in India. As per SteelMint data, 3 kg of CO2 is emitted for every tonne of DRI production in India. Concerns related to carbon emission are likely to constrain coal-based DRI production capacities in India, SteelMint understands.

*Correction