Public CompanyPig iron producers in trouble again
Faced with tremendous margin pressures due to the runaway raw material prices and falling demand from consumer industries, pig iron producers have reduced their production capacity again by 10 per cent effective immediately.
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In January this year, domestic pig iron producers had lowered capacity by up to 50 per cent which was increased by half in April on signs of economic recovery and thereby, resuming demand from the steel industry.
Since steel industry, which is a major consuming sector, has again been pushed into an uncertain future, the fate of pig iron producers has turned gloomy, for the second time in five months, said N Mohapatra, vice president (finance) of KIC Metaliks Ltd, one of the largest organised sector pig iron producers in the country.
Major producers of the steelmaking raw materials have reduced the capacity again by 5-10 per cent with the present operating capacity of 60-65 per cent as of on Monday.
Since iron ore and coke prices have risen by about Rs 200 per tonne and Rs 500-800 per tonne respectively since May 1, pig iron producers are facing renewed pressure on their operating margins. Companies like Saurashtra Ferrous are selling pig iron with a loss of Rs 200-500 per tonne.
“We cannot close our plants as re-starting it costs several times the loss on the output. Secondly, the gestation period for restarting the plant is more than a fortnight which, if practised, cannot fructify,” said Navin Sinha, a senior executive of Saurashtra Ferrous, a Gujarat-based pig iron producer.
Considering the present prevailing price of iron ore at Rs 3,200 per tonne and coke prices of Rs 15,500 per tonne (imported coke at Rs 16,600 per tonne), the cost of pig iron production stands at approximately Rs 16,000 per tonne against the present market price of Rs 15,800 per tonne. Prices of pig iron have declined by Rs 500 per tonne since May 1.
Each tonne of pig iron production requires 700-800 kgs of coke and 1.65 tonnes of iron ore.
“We are waiting and watching for any improvement in the global economic scenario with hope that it will recover in the near future,” he said.
Public and private investments in housing and infrastructure will drive demand for steel and thereafter steel-making raw materials, Sinha added.
Pig iron production was down 50.3 per cent year-on-year to 1.3 million tonnes in March 2009. The output of the steelmaking raw materials during the first quarter was recorded at 4.5 million tonnes, a fall of 40.6 per cent from the comparable period last year.