News & Management Updates

Strategy in hard time pig iron business makes sense

When input raw material cost is high and market price of final product is depressed, the companies are in a critical situation, with squeezed margin. The strategies in such situation is to a) focus on raw material security to control over raw material prices, b) go up value chain for higher margin, c) optimize product mix to maximize profitability, and d) cut production cost.

Currently Indian pig iron industry is going through similar situation. Indian pig iron industry produces around 5.5 MTPA of pig iron. Foundry grade production is linked to automobile castings. With car sale currently down in India, the order on foundries from auto manufacturers are low. Steel grade pig iron demand is linked to production of billet for construction. Currently, iron ore price is high due to non-availability from Goa sector and little from Karnataka due to ban of the SC. There is subdued price of pig iron. The price of foundry grade pig iron is INR 24,500/t, and steel grade pig iron is INR 22,000/t in Kolkata market. The price in international market has slipped to US $ 400/t. But, billet has better the price realisation today than pig iron.

Nilachal Ispat Nigam Ltd. (NINL), promoted jointly by MMTC, Industrial Promotion Company Ltd. (IPCOL) and Odisha Mining Corporation (OMC), has the production capacity of 1.1 MTPA. They switched partially to value added product of billet production. The company changed their product mix to produce about 400,000 T of pig iron and 400,000 T of billet from May 2013 onwards.

Sesa Goa (from Sesa Industries), the largest manufacturer of foundry grade pig iron, is using iron ore fines (62% Fe, INR 2,000/t at mines) instead of lumps of nearly equivalent grade (INR 6,500/t). This reduces the production cost.

Mideast Integrated Steel Plant (from MESCO), 1 MTPA pig iron producer with plant at Kalinganagar, Odisha, is planning to cut use of high grade lumpy iron ore. They are planning to put up one more sinter plant to use more fines than CLO.

With subdued market price of pig iron and high input cost, producers follow mainly one of the above strategies for better realisation.