Sponge Iron is mainly used as a raw material for speciality steel as well as substitute for scrap. Made from iron ore, sponge iron in itself is not used. It is further processed to make wrought iron. The rise in price of scrap and other factors have led to the increase in the use of sponge iron for making high quality steel.

The quality of sponge iron is primarily ascertained by the percentage of metallization (removal of oxygen), which is the ratio of metallic iron to the total iron present in the product. Sponge iron manufacture is highly sensitive to raw material characteristics.

Therefore, it is essential to examine the chemical and physical characteristics of raw materials, both individually and in combination.

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The total global production of sponge iron was estimated to be about 49.45 million tons in the year 2004. India, Venezuela, Iran and Mexico are the four largest producers of sponge iron with about 16%, 14%, 11% and 11% share of world's total production.

Fortune of global sponge iron is closely linked with steel industry. As global steel industry is projected to grow by nearly 7 percent in 2007, sponge iron would also grow at a faster clip. Cost of natural gas and iron ore are the major factors that shape the price of sponge iron in domestic as well as global markets.

With the domestic steel industry picking up during the past year and prices moving up in leaps and bounds, India has emerged as the world's largest producer of sponge iron (or direct reduced iron), accounting for around 16 per cent of the global output.

JSPL has the world's largest coal-based sponge iron manufacturing facility at Raigarh in the State of Chhattisgarh, with an installed capacity of 1.37 MTPA, using ten rotary kilns. Sponge iron was the first production facility at the Raigarh plant, commissioned in 1991.

Sponge iron is used to make steel by all Indian steel producers and is a substitute for steel melting scrap. Healthy demand growth in steel sector is also pushing sponge iron demand. Apart from declining availability of steel melting scrap, sponge iron demand has also gone up considerably and is likely to continue.

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About 45% of the domestic output is through EAF (Electronic Arc Furnace) route. However, going forward this is slated to increase. With steel production likely to grow at 6%-7%, the demand for sponge iron is likely to grow at more than 10 percent till the year 2007 and then expected to stabilize at 8 percent after that.

The demand for steel is dependent on the overall health of the economy and the infrastructure developmental activities being undertaken. The steel prices in the Indian market primarily depend on the domestic demand and supply conditions, and international prices.

Government and different producer and consumer associations regularly monitor steel prices. The duty imposed on import of steel and its fractions also have an impact on steel prices. The price trend in steel in Indian markets has been a function of world's economic activity.

Prices of input materials for iron and steel such as power tariff, freight rates and coal prices, also contribute to the rise in the input costs for steel making.