Margins Under Pressure, Steel Industry Seeks Ban On Exports Of Raw Material

With increased domestic iron ore and pellet prices hurting the secondary steel producers, industry has written to the Prime Minister Office (PMO) asking for a ban on exports of the key raw material used in the making of steel.

The domestic secondary steel industry contributes nearly 55 per cent to the total production of the alloy in the country. These players produce steel through the electrical route unlike the primary steel producers who use blast furnaces to make the alloy. The All India Induction Furnace Association wrote the letter to the PMO on September 25.

There are more than 2,000 secondary steel units across the country, including sponge iron, induction furnace, and rolling mills.

"Iron ore and pellet prices have jumped nearly 40 per cent in the last six months starting March due to supply crunch. This has impacted the margins of secondary steel producers who were already dealing with weak business climate due to Covid-19," said Kaushik Agarwal, chief financial officer at Brahmaputra Metallics.

Pellets are small balls of iron ore used in the production of steel. The raw material forms 60 per cent of the cost of production of steel and hence a spike in prices of the commodity hurts margins.

"In the past six weeks, prices of finished steel have declined by 8-10 per cent. With raw material prices remaining stiff, secondary producers are facing margins contraction of about 10-11 per cent (in the period under review)," said Agarwal.

Brahmaputra Metallics runs a coal-based 105,000 tonne sponge iron unit in Jharkhand.

The recently concluded iron ore mining auction in Odisha has added to the woes of the secondary players as nearly 50 per cent of the mines auctioned have gone to large steel players for captive usage and balance, which have gone to merchant miners, are still to start production. This has created shortage of the material in the domestic market.

"As if domestic shortage was not enough (due to auctioning), NMDC is also exporting the ore for better realisations. On a monthly basis, nearly 1-1.1 million tonne ore is moving out of the country which is double from last year," said another sponge iron producer on condition of anonymity.

In FY20, India's iron ore exports rose to 37.69 million tonne (mt) from 16.15 mt in 2018-19, almost 133 per cent jump, said the letter to the PMO. Owing to the strong demand from China, India exported nearly 30.86 mt iron ore, 82 per cent of total exports to China alone, it said.

Meanwhile, Odisha Mining Corporation (OMC) is providing relief to the secondary players in terms of supply but prices of the material remain elevated.

India's iron ore production during April-July period stood at 47 mt, down 50 per cent over the same period last year.

"It is a tough business environment due to increase ore prices. We are getting our supply from OMC as of now but at a very high price," said Debabrata Behera, managing director of Odisha-based Kashvi Power & Steel.

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor