Introduction

Sponge iron is a metallic product produced through direct reduction of iron and iron ore pellets in the solid state. It is a substitute for scrap and is mainly used in making steel through the secondary route. The process of sponge iron making aims to remove oxygen from iron ore. When that occurs, the departing oxygen causes micro pores in the ore body making it porous. The final product, when observed under a microscope, resembles a honeycomb structure looking spongy in texture, hence the name sponge iron.

High Quality

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. The basic raw materials for the production of sponge iron are iron ore, non-coking coal and dolomite. Several tests are conducted in the company laboratory to ascertain their suitability in a rotary kiln.

Coal

Important factors determining coal quality are:

Chemical properties such as fixed carbon, ash content, volatile matter, etc. Physical properties viz., reactivity and ash fusion temperature.

TSIL sources its entire coal requirement from the subsidiaries of Coal India Limited, which is known for their high quality coal reserves.

Iron Ore

In sponge iron making, iron ore is reduced in solid state. Unlike in the conventional steel melting processes, the gangue content of iron ore cannot be separated as a slag. Therefore, it becomes imperative to select an ore with a high Fe content and a low gangue content, to optimize yield during steel making. Apart from this, to ensure a better kiln campaign life and output, the iron ore is made to undergo a series of other tests viz. shatter, tumbler & abrasion indices, reducibility etc. By virtue of its location, TSIL enjoys the proximity of good iron ore reserves, suitable for sponge iron making, in the Northern part of Orissa. TSIL sources its iron ore from the Khondbond Mine of Tata Steel, which has one of the finest quality iron ore in the region.

Dolomite

Dolomite acts in the process as a desulphuriser, removing sulphur from the feed mix during the reduction process. It is mixed in small proportion along with other raw materials before charging into the kiln. TSIL's entire requirement of dolomite is obtained from Tata Steel's Gomardih dolomite quarry.

During CY 2004, the total global Production of sponge iron was 49.45 mn tones. India is the global leader with 8.07 mn tones of production followed by Venezuela with 6.9 mn tones.

Demand Outlok

Sponge Iron is increasingly being used to replace scrap in steel making primarily because of:

The strong demand from steel producers has resulted in a surge in consumption of sponge iron, resulting in a strong up trend in sponge iron demand and sustained price rise. The demand outlook is strong for the future and the prices are expected to remain firm, even though they have moved up insignificantly in last 12 months.

Advantages of Sponge Iron

Advantages of sponge iron over scrap:

Prices in the International Market

The demand-Supply dynamics of metalic including sponge iron plays their role in a limited way in determining their prices. The prices of these intermediates primarily follow the scrap prices. Presently, the scrap prices are at their historic high levels because of no-availability of scrap from all major sources. Further the boom in the shipping sector too has played its role in tight availability of quality scrap.

We believe, the average scrap prices for next 2-3 years are likely to stabilize at around US$200-210 per ton as against US$125/ton in the previous 3 years.

Domestic Sponge Industry

Domestic installed capacity increase from 1.52 mn tons in CY 1991 to 8.07 mn tons in CY 2004. There are 53 sponge iron units in the country, of which 50 are coal based totaling 4.1 mn tons of capacity and the remaining 3 units are gas based (3.97 mn tons).

Government is encouraging this sector as to reduce the dependency of steel mills on imported scrap, which is globally facing a severe scarcity situation.

Close to 100 small capacities (ranging from 20,000 to 30,000 tons) are likely to come on stream during FY 2006. Other than these fragmented capacities, big players including Tata Sponge and Jindal Steel and Power are also increasing their capacities by 0.15 mn tons and 0.66 mn tons respectively.

Historically, the sponge iron prices in domestic quoted at a discount of Rs 1500/ton-Rs 2000/ton as compared to the landed cost of the Heavy Metal Scrap (HMS). Since November 2004, this gap has widened indicating the possibility of price increase, going forward.

Domestic Scenario

WITH the domestic steel industry picking up during the past year and prices moving up in leaps and bounds, India, for the first time, has emerged as the world's largest producer of sponge iron for the year 2002, accounting for around 12 per cent of the global output.

In 2001, Mexico occupied the numero uno position with India a close second. Mexico has moved down to the third place this year with Iran slipping to the second position, according to global production figures made available by the US-based Midrex, global consultant and technology supplier for sponge iron production.

Sponge iron is used to make steel by all Indian steel producers and is a substitute for steel melting scrap. Midrex controls around 93 per cent of the world's sponge iron production by its technology.

With 6.53 million tonnes production in 2002, India has become the world's largest producer in this category. It recorded a 16.87 per cent increase in production from 5.59 million tonnes to 6.53 million tonnes in 2002. Out of this, 3.416 million tonnes were produced by the gas-based units while the remaining 3.116 million tonnes were produced by the coal-based units.

India is followed by Iran with 5.3 million tonnes production, Mexico with 4.8 million tonnes and Venezuela with 4.8 million tonnes of production, according to Midrex.

Together, these four countries account for around 40 per cent of the global sponge iron production.

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.

Quantum of units

It's hard to reach a particular figure, which indicate the total number of sponge iron units exist in India because 60 percent of the sponge iron units are coming from small-scale industries. Many of them are from unorganized sector too. There is certain unreported fly by night companies. Hence, it is quite impossible to ascertain the total number.

Output

The installed production capacity of sponge iron in India has increased from 1.52 MTPA in 1990-91 to over 7 MTPA in 2002-03. Sponge Iron production by secondary producers between April 2003-February 2004 stood at 7,301 thousand tons compared to that of 6,287 thousand tons in the same period the last year. Thus, the industry grew approximately at the rate of 30 per cent. Overall growth in production in 2002-03 has been about 22 per cent over the previous year. While the coal-based units have shown an impressive growth of 32 per cent in production in 2002-03, gas-based units recorded a growth of about 40 per cent. The small producers of sponge iron have registered a growth of about 28.75 per cent. All these point out to the substantial growth in the demand of sponge iron in the country.