Nepal: Sponge iron imports rise by 55% y-o-y CY'23

Nepal has seen a remarkable rise in scrap and metallics i.e. sponge iron and pig iron imports. In CY'23 (January-December), the import of sponge iron, rose by 55% y-o-y to 8,30,175 tonnes (t) and pig iron import is up by 26% y-o-y to 59,661 t, against 5,36,923 t and 47,501 t in CY'22.

Moreover, the import of sponge iron hiked by 29% m-o-m to 46,869 t. On the other hand, billet imports to Nepal fell by 48% y-o-y to 239,619 t for the same period.

Reasons behind increase in imports of sponge:

Nepal's currency was depreciating, leading to foreign exchange outflow. As a result, government implemented a policy encouraging domestic steel mills to become self-sufficient in raw materials (sponge iron) by building their own melting furnaces. This policy led to a significant increase in sponge iron imports, mainly from India, due to its proximity and logistical benefits.

India is the largest sponge iron manufacturer globally, India's sponge iron production for January-November 2023 is up by 18.7% y-o-y to 44.1 mnt against 37.32 mnt for the same period last year. Nepal and Bangladesh, the primary consumers of India's sponge iron exports, which total over 1 million tonnes, solidify India's position as a major player in the global market.

On the other hand, Nepal's infrastructure and construction sectors are experiencing rapid growth, leading to a significant increase in steel demand. This demand can be met more effectively by domestic production using sponge iron.

Outlook

Nepal's booming sponge iron and pig iron imports are expected to stay strong due to a mix of government policies, economic growth, and infrastructure investment. While, a weak currency and proximity to Indian suppliers make sponge iron cost-effective. However, falling billet imports indicate a shift towards using sponge iron for domestic steel production, potentially leading to a more robust and diversified steel sector.