Indian sponge iron prices hit two-year high as coal costs squeeze steelmakers
Indian sponge iron prices reached their highest level in two years as rising thermal coal, freight and insurance costs lifted production expenses. Billet producers have passed much of the increase downstream, but resistance to higher offers and a possible shift toward scrap could limit further gains.
Coal costs lift sponge iron prices
Indian domestic sponge iron prices climbed to their highest level in two years and continued rising through mid-September, according to SMM. Higher thermal coal costs were the main driver, while restocking and improved buying interest also supported the market. Producers have passed higher input costs to customers, although SMM said speculative behavior also emerged during the latest two weeks of the rally.
Raipur PDRI reached $309 per tonne, or INR 29,700 per tonne, ex-works on August 31 and rose to $310 per tonne, or INR 29,800, on September 15. Bellary PDRI was assessed at $304 per tonne, or INR 29,200, on August 31 before advancing to $326 per tonne, or INR 31,300, ex-works by September 17.
Over the month to September 17, Bellary PDRI gained $49 per tonne, or INR 4,700, an increase of 17.7%. Raipur PDRI rose $33 per tonne, or INR 3,200, equivalent to 12.2%. Raipur billet prices increased by $57 per tonne, or INR 5,500, to $464 per tonne, or INR 44,500, over the same period.
Costs move through the steel chain
The simultaneous rise in PDRI and billet prices indicates that downstream billet makers have transferred much of the cost increase to buyers. Their margins have consequently remained broadly stable. Trading volumes were healthy on days when prices rose, reflecting purchases for immediate needs as well as some restocking in anticipation of further gains. SMM nevertheless found no marked improvement in end-user demand.
India is the world’s largest sponge iron producer, operating about 336 plants with annual output of roughly 50 million tonnes. Production relies heavily on coal-based rotary kilns using non-coking thermal coal from domestic mines and imports from Indonesia, South Africa and Russia. The steel and sponge iron sector accounts for close to 40% of India’s imported coal.
Trade sources cited by SMM said Indonesian thermal coal prices had risen 18-20% since May, while Russian and South African prices increased by 14% and 19%, respectively. Higher vessel fuel and insurance expenses amid Middle East tensions also raised landed costs. Domestically, power plants received priority during peak summer demand, while monsoon rains disrupted mining and rail transport.
Buyers resist the highest offers
Producers are maintaining lean inventories and purchasing only immediate requirements. Thermal coal imports by steel and sponge iron manufacturers fell 11% in June and 19% in July after importers reduced purchases when overseas material appeared expensive relative to domestic coal. That decision subsequently contributed to a supply gap and higher domestic coal prices.
Induction and electric-arc furnace operators still generally favor sponge iron over scrap because it is cheaper and its supply is more consistent. In Bellary, transactions were reported around $325-326 per tonne, or INR 31,200-31,300, while offers near $328-329 per tonne, or INR 31,500-31,600, met resistance. SMM expects prices to remain firm near current levels for the next two months. A significant correction would probably require lower global coal prices, cheaper freight or a faster recovery in domestic coal supply. Demand could also move toward scrap if its price gap with sponge iron narrows.