India's sponge iron production poised to rise 12% by FY25. What factors will drive this growth?

• Odisha seen retaining largest-producer tag by FY25
  
  
• Higher crude steel, pellet production to boost sponge output
  
  
• Larger role in billet production expected
  
  

Morning Brief: India's sponge iron production is projected to increase by around 12% to 48 million tonnes (mnt) by financial year 2024-25 (FY25), as per SteelMint's estimates. Production has already witnessed a considerable growth of around 12% in FY23 to over 43 mnt from 38.60 mnt in FY22, with the country emerging as a key player in the global market.

State-wise production capacity

India's eastern region is the predominant player in DRI. The state of Odisha is India's largest DRI producer, with almost 15 mnt per annum (mntpa) to its credit which is 24% of the total production. As per SteelMint's estimates, this volume is expected to rise to around 16 mnt by 2025. Chhattisgarh, with 12.4 mnt (20%), stands as the second-highest producer and sees an increase to 13.6 mnt in two years' time.

West Bengal is third at 8 mnt, with an expected volume rise to 9.4 mnt in 2025 while Jharkhand anticipates an increase to 5.4 mnt from the present 4.9 mnt.

India's top DRI producers

AM/NS India is the top DRI producer in India with a capacity of 7.83 mntpa, followed by the JSW Group with 6.71 mntpa. Tata Steel (3.17 mntpa), Jindal Steel & Power (3.12 mntpa),

Shyam Metalics & Energy (2.71 mntpa) and Rashmi Group (2.18 mntpa) are in third, fourth, fifth and sixth positions respectively. Rungta Group is at seventh with 1.55 mntpa.

While AM/NS India, JSW Group, Tata Steel and JSPL are seen having flat growth in production by FY25, others will expand capacity. Shyam Metalics contribution will possibly rise to 4.08 mntpa, and Rungta's to 2.32 mntpa.

Other producers include Prakash Industries (1.20 mnpta), Shyam Industries (0.39 mntpa) and Real Ispat, whose output plans include an increase from the current 0.36 mntpa to 0.76 mntpa by FY25.

What factors will drive higher sponge iron production?

Rise in crude steel production:?India's crude steel production has experienced significant growth, currently standing at approximately 126 mnt. Around 45% of this is produced by the blast furnace-basic oxygen furnace (BF-BOF) route, with the rest being produced via the electric arc furnace-induction furnace (EAF-IF) method. It is estimated that crude steel production could touch around 145 mnt by FY25, representing an overall growth of around 15%. This growth will directly impact upward the demand for sponge iron as a raw material, especially since the EAF-IF segment, whose key raw material is sponge iron (along with scrap), will still hold sway by FY25.

Expected increase in DRI capacity: DRI has gained prominence as an alternative to melting scrap in India's induction and electric arc furnaces. Currently, DRI has about 30% share in India's total crude steel-making. With an annual installed capacity of approximately 63 mnt in FY23, India stands as the world's largest DRI producer. Projections by SteelMint indicate that India's DRI capacity is set to reach 68 mnt by FY25, representing an 8% growth compared to FY23.

Increasing pellet production: Pellet is a key raw material for manufacturing sponge iron. In FY23, India's pellet production rose an estimated 7% to 84 mnt, from 78.40 mnt in FY22. Production increased on the back of capacity increase of 18% to 133.3 mnt in FY23 from 112.5 mnt in FY22. Higher pellet output is also seen driving up sponge production over the next couple of years.

Greater role in billet manufacturing: Scrap imports have decreased but domestic sponge iron output has increased. Hence, furnace owners have modified their procedures to rely increasingly on sponge iron as a scrap substitute in billet manufacturing. For instance, the eastern market usually makes 85% usage of sponge iron in billet-making, the balance 15% being scrap and pig iron. However, Maharashtra and the adjacent belts, which habitually used 75% scrap and 25% sponge, are switching to a scrap:sponge ratio of 65:35 amid lesser scrap availability.

The rising use of sponge iron in billet manufacturing demonstrates the industry's flexibility and adaptability in responding to shifting market conditions. This trend is likely to continue since scrap will increasingly become a scarce commodity as countries adopt green steel-making measures.

Sponge iron exports increase: India is also a significant exporter of sponge iron, primarily to Nepal, Bangladesh, and Bhutan. India's sponge iron exports hit a record high of 1.16 mnt in FY23, up 49% from 0.78 mnt in the preceding fiscal, according to SteelMint data. 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 that they prefer to manufacture billets from sponge iron rather than import semi-finished steel. Nepal's increasing dependency on India's sponge iron is likely to continue into the long term.

Looking ahead

It is worth mentioning that as India's infrastructure and construction continue to gain momentum, demand for steel and its raw materials is expected to stay strong. This spells good news for sponge manufacturers.

SteelMint hosting joint global conference on DRI, coal, & iron ore in Kolkata

SteelMint is hosting a joint international conference on sponge iron, iron ore and coal from 24-26, Aug, 2023 at the JW Marriott, Kolkata. Over 20 esteemed speakers and 500 participants will gather to discuss key issues challenging the steel sector and thrash out ways to navigate through the current scenario. It is an ideal platform for miners, pellet and sponge iron makers, steel manufacturers, traders, equipment suppliers, and technology providers to network under a single roof. Hope to see you there. Register fast.