Coal auction may be an opportunity for sponge iron units

With the government opening up auction of coal mines for commercial extraction, an opportunity for the domestic sponge iron industry has emerged as players could now look at having a coal-gasified direct reduced iron (DRI) plant. However, high investment cost could turn out to be a constraint.

“We see a potential for at least 10-12 new (coa-gasification-based) DRI plants to come up across the country. Incentivising coal gasification is an encouraging move for the sponge iron industry, which faces stiff competition from cheap scrap imports,” V R Sharma, managing director (MD) at Jindal Steel & Power (JSPL) told Business Standard.

Apart from Jindal Steel, Tata Steel Long Products is among the largest players in the domestic sponge iron industry. According to the Sponge Iron Manufacturers Association (SIMA) website, India’s sponge iron production in FY19 stood at 29.4 million tonnes, of which 21.4 million tonnes output came from coal-based units. The balance was from gas-based plants.

“A coal-gasified DRI plant will yield a better quality product (sponge iron) against a coal-based plant. So, to that extent, this is a good opportunity for the domestic sponge iron industry as coal will be available in abundance,” said Bajrang Lohia, chairman of Brahmaputra Metallics. Lohia runs a 105,000 tonnes coal-based sponge iron unit in Jharkhand.

JSPL is already using coal gasi

“WE SEE A POTENTIAL FOR AT LEAST 10-12 NEW DIRECT REDUCED IRON PLANTS TO COME UP ACROSS THE COUNTRY. INCENTIVISING COAL GASIFICATION IS AN ENCOURAGING MOVE FOR THE SPONGE IRON INDUSTRY, WHICH FACES STIFF COMPETITION FROM CHEAP SCRAP IMPORTS” V R SHARMA, managing director, JSPL

fication technology at its 1.8 million tonnes sponge unit in Angul, Odisha. The Naveen Jindal-led company is the country’s first plant producing steel using this technology.

Producing sponge iron via the coal-gasification route brings down the cost of production by about 1015 per cent compared to using coal as feedstock, said industry officials.

While DRI is a superior technology, also because of lower environmental impact, the investment cost could be a dampener, especially at this time when demand for end products is low. Jindal Steel has made a total investment of around ~25,000 crore in the mine and unit. “Sponge iron units cannot afford to invest in coal-gasification technology unless they are assured uninterrupted supply of coal which can come from holding rights to a mine. So, on the policy front, there has to be an assurance that decisions will not be reversed,” said an executive with Agni Steels, on condition of anonymity.

The government plans to gassify around 100 million tonnes of coal by 2030 for which four locations have been identified. For the 41 mines on offer for commercial mining, around 35 per cent of the land falls in forest areas.