India's sponge iron production up nominal 6% in CY'22

• Captive players impacted by gas availability
  
  
• Exports up 50%, boosted by Nepal imports
  
  
• Output slated to increase by 1-1.5 mnt in CY23.
  
  

Morning Brief: Indian sponge iron production remained more or less stable y-o-y in calendar 2022 (CY22), rising a nominal 6% to over 40 million tonnes (mnt) against 38 mnt recorded in the preceding year (2021), shows SteelMint data.

Three main captive producers saw their output dropping y-o-y while another reported a marginal growth. For instance, AM/NS India registered volumes of 4.58 mnt in 2022, a drop of -13% y-o-y against 5 mnt in 2021. In the same vein, JSPL's volumes dropped -11% to 2.38 mnt from 2.68 mnt in 2021 while JSW saw a -3% dip to 1.98 mnt compared to 2.05 mnt in the same period.

The Tata Group's production remained stable at 1.50 mnt y-o-y.

Other smaller players also saw a moderate 12% growth to 30 mnt last year against 27 mnt in 2021.

India is the largest DRI producer globally in which the share of coal-based is about 30 mnt, the balance being gas-based.

What factors kept output range-bound?

Gas availability a challenge: Gas availability and its prices were a major challenge last year. Since natural gas prices are linked to crude oil, the Russia-Ukraine war sent prices of the latter spiralling and sparked off a price surge in the former. As a result, all the gas-based producers, mainly captive, reported lower production volumes. In fact, amid the cost pressures, due to gas availability issues last year, a couple of hot briquetted iron (HBI) cargoes of Middle East and Russia origin were booked by a western India-based integrated steel mill.

High coal prices a dampener: Prices of thermal coal, a key fuel for sponge players, rose sky-high last year. In fact, thermal coal prices rose the most, by over 100% last year, amongst all steel-making input materials. Therefore, the smaller sponge players, who contribute to the bulk of production and whose preferred material is RB2 from South Africa, had to work around the challenge by blending with domestic or even cheaper Russian coal.

Meanwhile, procuring iron ore lumps as feedstock also became a challenge as the delivery time was taking longer compared to pellets. Hence, pellet-based production increased as producers started preferring the former to lumps.

Sponge iron exports up 50% in 2022

Around 1 mnt was exported in 2022 in which the share of Nepal and Bangladesh comprise more than 90%. Total exports in CY22 rose 50% y-o-y against 0.67 mnt in 2021.

Nepal's imports boost volumes: Exports of the material rose almost 50% y-o-y in 2022, boosted by demand from Nepal. Volumes to this neighbouring Himalayan kingdom almost doubled to 0.52 mnt last year against 0.26 mnt in 2021. In fact, Nepal's imports have steadily risen from a mere 60,000 tonnes in 2017 to 0.26 mnt in 2021 and spurted to 0.52 mnt in 2022. Nepal is finding it cost-effective to consume more sponge iron instead of using imported billets. The country's mills have thus been increasing their melting capacities and are preferring to manufacture billets using sponge iron rather than importing the semi-finished item. In fact, Nepal's billets imports plunged from over 1 mnt in 2021 to 0.44 mnt over January-November, 2022.

Imports from Bangladesh stable: Imports of sponge iron by this South Asian country has been stable, rising nominally to 0.39 mnt in 2022 against 0.37 mnt in 2021. The country needs to import sponge iron keeping in mind its rising steel capacities. However, imports, could have been more had Bangladesh not been plagued by issues like a weakened currency, subdued demand for finished steel and restrictions on opening new LC accounts to stem further forex drain.

Outlook

India currently has an installed sponge iron capacity of 61.50 mnt, with an average utilization of 65%. SteelMint expects that in financial year 2022-23 (FY23), the operational capacity and production would touch 63 mnt and 40-41 mnt respectively.

The secondary units are eager to expand via the EAF/IF route, so, up to December in FY23, the units received approval (environmental clearance/consent to establish) for expansion of 16.9 mnt.

In FY22 , the units received approval for expansion of 17.50 mnt. Thus, production will increase in the short term. And, in CY23, as per SteelMint's estimates, possibly rise by 1-1.5 mnt.