February 6, 2002
‘18’
BACKGROUNDER
SPONGE IRONSponge iron is an iron-bearing metallic product. It is also known as Direct Reduced Iron (DRI) or Hot Briqueted Iron (HBI). This is a substitute of steel melting scrap used mainly in electric arc furnaces, induction furnaces and basic oxygen furnaces. The indigenous availability of metal scrap is not sufficient to meet the present and emerging need of steel producers in the country.
The industry has been playing an important role to meet the country’s requirement of metallics. Today, India is the third largest sponge iron producer in the world. This sector not only saves precious foreign exchange by substituting the imported steel melting scrap, but is also directly earning foreign exchange through exports.
At present, there are 73 sponge iron units in the country. Out of these, 70 are coal-based units and the remaining 3 are gas-based units with a capacity of 3.860 million tonnes per annum.
India is rich in coal reserves but the quality of coal is debated mainly due to its high ash content. Moreover, the technology used in coal based sponge iron plant do not enjoy economies of scale. Gas is not available for sponge iron making at a reasonable cost. Therefore, the prospect of iron ore export in the form of sponge iron after value addition to iron ore is a distant reality. But, in the global market, mainly in the advanced countries where energy is not very costly, the cost of DRI is increasing steadily and will continue to increase further and thus India is losing out on a major export avenue.
The year 1999 and 2000 were not favourble for Steel Industry. Natural gas prices went up, but selling prices for DRI remained depressed. DRI is still principally a substitute for steel scrap in electric furnaces. When scrap is priced under $100 per tonne, as it is currently in a number of markets, few DRI producers can compete. Thus, there is not much DRI being offered at current prices and some merchant plants are operating at reduced levels.
In 2005, based on the level of demand for SSS material in our Global Metallics Balance system, global SSS capacity would need to rise to about 80 million tonnes. The Midrex Corporation, a leading supplier of DRI facilities, estimates that operable direct reduction capacity should be about 62 million tonnes in 2005, down 6 million tonnes from last year’s estimate. This would consist of 9 million tonnes in the developed world, 50 million tonnes in the developing would and the ex-communist world flat at 3 million tonnes. The estimated capacity could reach 79 million tonnes by 2010.
As per WSD estimates, global DRI production is to rise from 43.2 million tonnes in 2000 to about 55 million tonnes in 2005. If estimated capacity is 62 million tonnes, the global operating rate would be 88 per cent compared to about77 per cent in 2000.