MUMBAI (Commodity Online): Finally, there is some solace for sponge iron manufacturers in India. After witnessing their profits vanishing with the rise in iron ore prices, sponge iron manufacturers are now happy that the iron or prices came down by around 17 per cent in August.

The prices of iron ore, the only raw material for sponge iron making, with iron content between 63 and 63.5 per cent, shot up in early August to $115-118 a tonne as long-term contracts between Chinese steel mills and global miners, including Vale, BHP and Rio, were delayed for uncertainty.

China, meanwhile, continued to feed steel mills with iron ore procured through spot market purchase.

This has resulted in standalone sponge iron producers’ margins slumping from a normal 12-15 per cent to almost ‘nil’ as they failed to pass on the price rise in iron ore to steel makers amid slowdown in local demand. Since construction activities are less during the monsoon season, demand for raw material, including sponge iron, declines.

Integrated sponge iron producers, however, continued with margins between 15 and 20 per cent as they sourced iron ore from their own mines.

But, as iron ore prices have declined now to $85 a tonne from $115-118 a tonne early this month, independent sponge iron producers will also get a reason to smile in the current volatile market.

Producers of secondary steel, which accounts for about 60 per cent of India’s 54 million tonnes steel production, use both sponge iron and scrap for steel-making. Generally, sponge iron demand peaks in the event of shortage of scrap supplies.

Sponge iron prices remained almost unchanged in the last two months and it is currently quoting at Rs 13,000 a tonne.

Prices of shredded scrap jumped about 30 per cent to $263 a tonne, while hot-rolled coil shot up by 39 per cent to $465 a tonne in the last two months. Hot-rolled sheet prices, in contrast, lowered 8.7 per cent since April this year to trade in August at $430 a tonne.

Many steel mills in the largest producing country had been purchasing ores only for immediate delivery due to the rising uncertainties in the steel market, which has weakened since early August. Experts believe that iron ore prices may decline further if China does not start picking up afresh.

Iron ore prices in China have been following steel prices closely for months, partly because domestic steel mills are setting up volumes of iron ore purchases with their production schemes and cash positions, which are co-related with steel prices.

The sponge iron output jumped 8 per cent to 15.94 million tonnes during 2008-09 as compared to 14.76 million tonnes in the previous year.

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