Nepal sponge iron imports hit all-time high in CY'22

Nepal's sponge iron imports hit an all-time high of over 500,000t last year, reveals data maintained with SteelMint. Over January-December, 2022, volumes rose over 108% y-o-y. Sponge iron, also known as direct reduced iron (DRI), is a crucial component in the production of steel. In recent years, Nepal has seen a significant rise in sponge iron imports, due to a number of factors.

Factors behind increase in Nepal's sponge iron imports

1. Increase in melting capacities and lower billet imports:
   
   

Nepal's steel industry has been growing rapidly, driven by increased demand for construction, infrastructure development, and consumer goods. As a result, there has been a corresponding increase in the country's melting capacities, leading to a rise in sponge iron imports. Data showed that its volumes have steadily risen from a mere 0.11 mnt in 2018 and spurted to 0.54 mnt in January-December 2022. Additionally, the import of billets, a key raw material for steel production, has been declining. Nepal's imports of billets have plunged from over 1 mnt in 2021 to 0.46 mnt over January-December, 2022, fueling the increase in sponge iron imports.

2. India's dominance in sponge iron production:
   
   

India is the largest sponge iron producer globally, with an output volume of around 40 mnt annually. Of this, approximately 30 mnt are coal-based, while the balance is gas-based. India exports more than 1 mnt of sponge iron, of which the share of Nepal and Bangladesh alone accounts for more than 90%. This dominance has made India a key player in the global sponge iron market, and has also made it an important source of imports for Nepal.

3. Nepal's flexibility in using pellets/lumps-based DRI:
   
   

Nepal's steel industry has a significant advantage in terms of its ability to use pellets/lumps-based DRI. Unlike other countries, which primarily rely on scrap or billets for steel production, Nepal has the flexibility to use DRI in its melting furnaces. Additionally, the use of DRI reduces the dependence on other countries for raw materials, providing greater independence and stability in the steel production process.

Outlook

In terms of capacity, Nepal's steel industry is expanding rapidly. The industry's total annual capacity is roughly 3.5-4 mnt, and the yearly demand for steel is an estimated roughly 2-2.5 mnt. Both of these considerations will encourage further imports of sponge iron.

To gain a deeper insight into the changing dynamics of Nepal's steel industry, book your seat at the 2nd Nepal Trade Summit to be organised by SteelMint Events on 1-2 March, 2023 in Soaltee Crowne Plaza, Kathmandu.