Sponge Iron Industry B K Oct 06

Batlivala & Karani
B&K Securities
SECTOR U P D A T E
4th October 2006
Sponge Iron Industry Growing with Steel

Indian economy is one of the fastest growing economies of the world
with 7.5-8% expected Real GDP growth. Steel demand is expected to
double by 2012 on rising demand from infrastructure and construction
sector. About 48% of steel is made through secondary route (Electric
route) which uses mix of sponge iron and scrap in steel making.
We see the demand of sponge iron to remain buoyant driven by growth
in steel production.
Production of steel scrap in India is low at 15-20% of its consumption
due to longer product life cycle, as the country is in developing phase and
the consumption pattern is tilted in favour of infrastructure and
construction rather than consumer durables. Therefore, secondary steel
makers have to depend on imported steel scrap. Coal based sponge iron
is fast replacing imported steel scrap due to low cost of production as
non-coking coal and iron ore (two critical raw materials) are domestically
available and its production is rising.
The growth of gas based sponge iron has been limited due to poor
availability and higher cost of gas. Essar Steel, Ispat Industries and Vikram
Ispat are the only producers in India who came up in 1990s on western
coast of India.
The future of sponge iron will belong to the players who have their
captive sources of raw materials which will insulate them from market
fluctuations. Presently, only Jindal Steel & Power and Monnet Ispat have
captive resources of both iron ore and coal. Tata Sponge has recently
acquired 115 mn tonnes mineable coal deposit in Orissa which will get
functional by FY09.
Key industry data (Sponge Iron production)
(Mn tonnes)
Sanjay Jain
sanjay.jain@bksec.com
Tel.: 91-22-4007 6217
FY06
FY12E
CAGR (%)
Gas based
4.5
7.1
Coal based
7.3
16.3
14
Total
11.8
23.4
12
% of Coal based
61.6
69.6
Ashish Kejriwal
ashish.kejriwal@bksec.com
Tel.: 91-22-4007 6216
B&K RESEARCH
OCTOBER 2006
Investment arguments
The production of sponge iron (Direct Reduced Iron/Hot Briquetted Iron) started in late
1970s with one small sponge iron plant in the public sector in Andhra Pradesh viz. Sponge
Iron India Limited. During last decade, due to growth in domestic steel demand, a vigorous
growth in domestic steel production led by the secondary steel making sector, relatively low
cost of investment and ease of setting up of a sponge iron plant, availability of mineral
resources, frequent problems of scrap (affordability and availability), the sponge iron industry
has grown manifold and India became the world leader in sponge iron production in 2003.
Growth in steel production

The demand for steel continues to rise due to boom in infrastructure and construction
industry. The production of crude steel has grown at a CAGR of 9% during FY01-06 and
reached at 41.3 MT in FY06.
Increasing crude steel production
45
40
Crude steel production
(mn tons)
35
30
25
20
15
10
5
FY06
FY05
FY04
FY03
FY02
FY01
Source: SAIL
The production of steel through the secondary route (EAF, IF), using hot metal (pig iron),
Domestically available raw

materials would continue to
drive growth
sponge iron/scrap as their basic raw materials, accounts for approx. 48% of the total steel
output and has grown at a CAGR of 18% during FY01-05. The trend is expected to continue
due to rising availability of coal based sponge iron produced from domestically available raw
material. The flue gases generated in sponge iron making are utilised for production of power
for captive consumption.
Increasing production through the secondary route
(Mn tonnes)
FY01
FY02
FY03
FY04
FY05
CAGR (%)
Crude steel production
26.9
28
30.4
34.2
38.5
Main producers
17.3
17.8
19.0
20
20.0
Secondary producers
9.6
10.2
11.5
14.2
18.5
18
EAF
5.3
5.9
6.7
8.2
10.2
IF units
4.3
4.3
4.8
8.2
% share of secondary producers
36
36
38
42
48
Source: JPC
SPONGE IRON INDUSTRY
B&K RESEARCH
OCTOBER 2006
Continued substitution demand for scrap

Proportion of sponge iron in secondary production is expected to go up. Production of steel
scrap in India is low at 15-20% of its consumption due to longer product life cycle, as the
Sponge iron replacing

imported steel scrap due to
low cost of production
country is in developing phase and the consumption pattern is tilted in favour of infrastructure
and construction. Domestic availability of scrap is low, as the ship-breaking industry (main
source of indigenous scrap generation) isnt getting enough ships for breaking. Therefore,
secondary steel makers have to depend on imported steel scrap. Coal based sponge iron is
fast replacing imported steel scrap due to low cost of production, as non-coking coal and iron
ore (two critical raw materials) are domestically available and its production is rising.
Increasing share of sponge iron by secondary producers
(%)
00-01
01-02
02-03
03-04
04-05
05-06
Sponge iron
30
30
38
43
50
60
Scrap/Pig iron
70
70
62
57
50
40
Source: AML Steel
As Indian steel producers have to depend on import of scrap, the domestic prices of sponge
iron align with the landed price of scrap.
Scrap vs. DRI prices
Sponge iron price move in line

with landed cost of steel
scrap
300
16,000
250
14,000
12,000
200
10,000
150
8,000
100
6,000
Scrap Shredded fob Rotterdam $/ton (LHS)
DRI prices , Kolkata (Rs /ton incl. excis e & taxes , RHS)
50
2,000
-
1996
1998
2000
2002
Feb-03
Apr-03
Jun-03
Aug-03
Oct-03
Dec-03
Feb-04
Apr-04
Jun-04
Aug-04
Oct-04
Dec-04
Feb-05
Apr-05
Jun-05
Aug-05
Oct-05
Dec-05
Feb-06
Apr-06
Jun-06
4,000
Source: Metal Bulletin, JPC
B&K RESEARCH
OCTOBER 2006
Overview
The Indian sponge iron industry has seen a rapid and powerful growth in the coal based
sponge iron segment in the country, while the gas based segment is restricted mainly to 3
producers namely Essar Steel, Vikram Ispat and Ispat Industries due to expensive and limited
supply of natural gas. Moreover, the cost of setting a gas based sponge iron unit is very high
which is not feasible for small players. The demand of sponge iron in India has grown at a
CAGR of 10% over the last 10 years.
Production Processes & Technologies

In India, mainly coal based rotary kilns and gas based shaft furnace reactors are used for
producing sponge iron.
Coal based process

Sponge iron produced by
reducing iron ore using
non-coking coal
Coal based plants are of smaller size, requires low capital investment. Sponge iron is produced
by reducing iron ore using non-coking coal. Iron ore lumps and non-coking coal are charged
into a rotary kiln in requisite proportion along with fluxes. Coal plays a dual role in the process
by acting as a redundant as well as fuel for providing heat to maintain the requisite temperature
inside the kiln at 950-1050C. The reduction process occurs in solid state. Waste heat from
spent gases is utilised to produce power.
Gas based process

Requires high capital
investment, sponge iron
produced by reducing iron ore
pellets using natural gas
Gas based plants are of relatively larger sizes, require higher capital investment and uses
Midrex and HYL-III technologies for reducing iron ore pellets with natural gas as the redundant
in the reactor. The difference between the two technologies is the process of reforming and
use of the spent gas. The Midrex uses CO2 (+ steam) based reforming of the natural gas while
HYL-lll uses mainly the H2O reforming process. The specific consumption of various raw
materials for production of 1 tonne sponge iron (by Midrex process) include iron oxide 1.49
tonnes, natural gas of 2.5 GCal and 100 KWh of electricity. The hematite ore pellets/lumps
should possess 67% Fe minimum.
Composition of Coal and Gas based Sponge Iron
(%)
Fe (Metallic) Metallisation Carbon
Coal based
81-84
90 (+/-2)
Gas based
86.5
93+
Sulphur
Phosphorus
Size
0.2-0.3 .025-.03 max
.05-.06 max
3-30 mm
1.5-3
.015 max
.04 max 6-200 mm
India has been the worlds largest producer of sponge iron since 2003 producing 11.8 mn
tonnes in FY06, registering a growth of 15% over the last year. This has been due to rapid and
powerful growth in the coal based sponge iron segment in the country.
B&K RESEARCH
OCTOBER 2006
Sponge iron (DRI/HBI) production
(Mn tonnes)
FY04
FY05
FY06 FY07E FY08E FY09E FY10E
FY11E FY12E
Gas based
Coal based
10
12
13
15
16
16
Total
10
12
16
19
20
22
23
23
Growth (%)
17
27
15
32
20
% of Coal based
51
55
62
62
63
65
67
69
70
Source: B&K Estimates
FY12E
FY11E
FY10E
FY09E
FY08E
Coal Based
FY06
FY05
Gas Based
FY07E
18
16
14
12
10
8
6
4
2
0
FY04
Gap expected to widen further

in coming years
production (mtpa)
Sponge Iron production
Source: JPC & B&K Estimates
The share of coal based DRI production has increased from about 37% in FY01 to about
62% in FY06 and the gap is expected to widen further in the coming years.
B&K RESEARCH
OCTOBER 2006
Raw materials scenario

Non-coking coal
Non-coking coal is the basic raw material for coal based sponge iron plant. Although, India
has a vast reserves of non-coking coal (about 221 bn tonnes out of which proven reserves
Vast reserves of non-coking

coal but of inferior quality
with higher percentage of ash
content
are about 79 bn tonnes) but of inferior quality with higher percentage of ash content. The
high ash content is a major problem for sponge iron producers, as higher coal consumption is
needed in order to affect the same degree of reduction. Over 75% of non-coking coal
production is the lower D, E, and F grade. Generally, with 1% increase in the ash content,
production capacity decreases by about 2.5%. According to industry estimates, calibrated
non-coking coal (grade B/C) requirement is about 1-1.2 tonnes per tonne of sponge iron
produced but if low grade (grade D/E/F) coal is being used, then the coal required will go up
to as much as 2.5 tonnes or more.
The non-coking coal with a higher % of ash content needs to be washed and should be
Players located near coal

mines
brought it to a level of 25% or less for use in sponge iron kilns which adds to the cost. Freight
charges by railways constitutes about 30-40% of the total cost of non-coking coal. So, its
beneficial for the DRI (Direct Reduced Iron)/sponge iron producers to set up plants near
coal mines so as to save on transportation costs. Therefore, most of the players are located in
Chhattisgarh, Orissa and West Bengal region.
Many big players have already acquired captive coal blocks or are in the process of acquiring
it. But small players which are numerous in India have to depend on the market. Coal India
Limited has introduced the system of E-auction and supply of coal through Multi Commodity
Increasing coal prices put

pressure on the margins of
the players
exchange for the core sector other than the power utilities. So, now the prices are market
driven which will inevitably interrupt consistent supplies for producers who depend on market.
Higher ash content and increasing coal prices due to demand-supply mismatch put pressure
on the margins of the players. Some players like Tata Sponge Iron Limited started importing
low ash content non-coking coal and blend it with high ash content domestic non-coking coal.
Although, imported non-coking coal is very expensive vis--vis domestic one but in order to
improve the efficiency of the kilns, large players have started doing so.
Iron ore
Coal based sponge iron plants normally use 100% lump ores with Fe content greater than
62% while the gas based plants normally use a feed mix of iron ore pellets and lumps of
around 67% Fe content. According to industry norm, about 1.6 tonnes of calibrated lump
iron ore (5-18mm, Fe: Minimum 62%) is required to produce 1 tonne of sponge iron.
India has vast reserves of medium grade iron ore (hematite ores, Fe: 62-65%) which are
mainly located in the states of Orissa, Jharkhand, Chhattisgarh, Karnataka and Goa region.
B&K RESEARCH
OCTOBER 2006
Recoverable reserves of hematite as on 1.4.2000
(Mn tonnes)
Vast reserves of medium

grade iron ore available in
India
High Grade
Medium Grade
Low Grade
(Fe+65%)
(Fe 62-65%)
(Fe<62%)
Chhattisgarh
461
562
Orissa
548
Jharkhand
Karnataka
Goa Region
Others
Total
% share in total
Others
Total
463
417
1,903
1,857
508
291
3,204
44
1,754
873
188
2,859
215
583
79
90
966
133
392
56
581
30
134
146
104
406
1,298
5,023
2,461
1,146
9,919
13
51
25
12
100
Source: IBM, Nagpur
Increasing prices
About 54% of the total domestic production is exported in FY05 due to better realisation at
the global level owing to the higher demand of steel worldwide, in particular China. The price
at the domestic level is also moving northward.
Iron Ore
(MT)
FY03
FY04
FY05
Production
99
121
145
Export
48
63
78
% of production exported
48
52
54
Source: IBM & MMTC
Dolomite
Dolomite acts in the coal based process as a desulphuriser, removing sulphur from the feed
mix during the reduction process. It constitutes a very small proportion of total raw materials
required in the process and doesnt have much impact on the cost.
Natural gas
Availability of natural gas
restricted to western part of
country
Natural gas is used in gas based sponge iron units mainly through two processes in India
namely Midrex and HYL-III. Availability of natural gas is restricted to the western part of the
country which has favoured the growth of the gas based units there. High price of natural gas
in India is increasing the cost of production of the gas based producers.
Power generation
Power generation through waste heat from spent gases at very low cost is one of the biggest
advantages the coal based sponge iron unit is enjoying with. This would help the companies
in reducing the cost of production and earn additional income by selling the surplus power.
B&K RESEARCH
OCTOBER 2006
Captive power position
(Unit: KWh)
Module (TPA)
Additional income to Coal

based sponge iron plant
Module-wise power position

Power generation
Own consumption
Surplus power
150,000
10-12
3.5
6.5
100,000
7-8
2-2.5
1.5
30,000
Source: JPC
Raw material facility

More than 80% of the sponge iron producers are small producers (installed capacity of less
than 60,000 TPA) and have to depend on the market for basic raw materials. Producers are
unable to utilise their capacity to the fullest and are on the verge of closure amidst fluctuating
and increasing prices of raw materials, shortage of power facilities and lack of infrastructure.
Integrated players having captive raw materials are at advantageous position.
Regional overview
State/Region
Total No.
Captive power
Coal
Iron ore
of units
generation
linkage
source
Chhattisgarh
38
24
Orissa
33
24
West Bengal
30
23
Jharkhand
11
Karnataka
13
Andhra Pradesh
12
Tamil Nadu
Goa
Maharashtra
56
203
16
88
20
Others
Total
Source: JPC
Raw material availability and regional production

Chhattisgarh alone accounts for about 38% of total coal based sponge iron production.
Besides, production is largely concentrated in Eastern region (Orissa, West Bengal and
Jharkhand) contributing about 39% in total coal based production in FY05 due to their
proximity to basic raw materials iron ore and non-coking coal. The industry is virtually nonexistent in North India due to scarcity of raw materials. Gas based producers are located in
Western India only due to their proximity to natural gas. The whole production is consumed
domestically. This scenario is unlikely to change in the coming years due to increasing domestic
demand by the secondary producers.
B&K RESEARCH
OCTOBER 2006
Sponge iron production Geographical distribution
Chhattisgarh, Orissa, West

Bengal and Jharkhand
contributing approx. 77% of
total Coal based DRI
production in FY05
B&K RESEARCH
OCTOBER 2006
The Gas based Sponge Iron producers

Gas-based sponge iron is produced by Midrex process and HYL-III process using naphtha
or natural gas. This process is employed by Essar Steel, Ispat Industries and Vikram Ispat
(only Vikram Ispat uses HYL-III process). The entire sponge iron production of Vikram
Ispat is sold in the open market. Other gas based producers mainly consume it internally for
the production of steel.
Essar Steel
Worlds largest gas based DRI
plant having production
capacity of 3.4 MTPA
Essar Steel operates the worlds largest gas based Direct Reduced Iron (DRI) plant with a
production capacity of 3.4 million tonnes per annum (MTPA) at Hazira, Gujarat (5 gas based
modules with Midrex technology). The plant uses state-of-the-art technology, which ensures
high quality raw material for the steel plant. DRI is produced in two forms, namely, Hot
Briquetted Iron (HBI) and Hot Direct Reduced Iron (HDRI).The HDRI system is an Essar
innovation that saves approx. 100 KWh/tonne of HDRI consumed by Electric Arc Furnace,
thus, utilising the 650 Celsius heat contained in the HDRI. The plant is supported by a
captive power plant of 32 MW, which operates at 100% capacity.
Raw materials linkages

Long-term linkages for iron
ore and natural gas
Iron ore The company has a long-term contract with National Mineral Development
Corporation for calibrated lump iron ore and fines. The company has 8 MTPA capacity
pelletisation plant at Visakhapatnam and 8 MTPA iron ore beneficiation plant at Bailadila.
Natural gas The company also has long-term contracts for the supply of gas with GAIL,
IOCL, BPCL, GSPC etc. But, the supply of gas is erratic. Normally, 125 KWh of electricity
is consumed and on an average 325 SM3 of natural gas is used for producing a unit of
HBI.
HBI produced for captive consumption

Essar uses the HBI-Electric Arc Furnace-Continuous caster-Hot strip mill route to strip
making. The company consumes almost entire HBI produced for making steel.
Capacity
Production
Sales
FY06
FY05
FY04
FY03
FY02
4
3.5
3
2.5
2
1.5
1
0.5
0
FY01
Production mainly for captive

consumption
mtpa
Sponge iron
Captive cons.
Source: Essar Steel, annual reports
10
B&K RESEARCH
OCTOBER 2006
Ispat Industries Ltd.

Ispat Industries Limited (IIL) (formerly known as Nippon Denro Ispat), promoted by the
Mittals of Ispat group, is one of the leading integrated steel makers in India. The company
commissioned its gas based single mega-module plant for making sponge iron in Dolvi, Raigarh
(Maharashtra) in 1994 using direct-reduction technology Megamond series 1000 module
from Midrex Corporation, US, the world leader in this field. The current installed capacity of
the plant is 1.6 MTPA.
Raw materials dependence

Less availability of natural
gas restricts plant to operate
at its enhanced capacity
Iron ore The company sources its iron ore pellets requirements from National Mineral
Development Corporation, as IIL has no captive iron ore mines.
Natural gas Natural gas is sourced from GAIL, India but IIL is getting less gas due to
overall shortage of gas supply in India. Therefore, the company is not able to operate the
plant at its enhanced capacity.
Captive consumption
Ispat Industries, being the producer of hot rolled coils in India, currently consumes almost
entire sponge iron produced internally. In FY06, the production of HBI got affected due to
lower availability of natural gas as well as due to shutdown of plant for 35 days during MayJune for capital repairs.
Capacity
Production
Sales
FY06
FY05
FY04
FY03
FY02
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
FY01
Production mainly for captive

consumption
mtpa
Sponge iron
Captive cons .
Source: Ispat Industries, annual reports
11
B&K RESEARCH
OCTOBER 2006
Vikram Ispat (Unit of Grasim Ind.)

Plant having capacity of 0.9
MTPA can produce both HBI
and DRI from the same
reactor
Vikram Ispat, a unit of Grasim Industries Ltd. is located at Salav village in Raigad, Maharashtra.
The plant was set up in 1989 with a capacity of 0.75 MTPA of sponge iron in the form of
HBI, based on HYL-III technology from HYLSA, Mexico. In 1998, Oxygen Injection System
and DRI Cooling system was commissioned and the plant capacity was increased to 0.9
MTPA. The plant can produce both HBI and DRI from the same reactor.
Raw materials
Iron ore in the form of pellets is sourced from Gujarat Industrial Investment Corporation
and lump ore from Bailadila .The company doesnt have captive mines.
Natural gas consisting of 90-95% methane is sourced from the piping network of GAIL,
India. The plant has been integrated with total energy concept (due to HYL III process)
with 8.7 MW power capacity.
Sponge iron
1
Entire production is sold in

the open market
mtpa
0.8
0.6
0.4
0.2
Capacity
Production
FY06
FY05
FY04
FY03
FY02
FY01
Sales
Source: Grasim Industries, annual reports
Less availability of natural gas rising input cost

In FY06, due to an acute shortage of natural gas (continuous reduction in the generation of
gas from ONGC wells over the last five years), the plant couldnt be utilised properly and
hence production fell. In order to cater to the market demand, the plant has been using
supplementary energy sources like naphtha and propane which are 5-6 times costlier than
natural gas. The input cost has increased in multiples leaving the business margins bare
minimum.
No captive consumption
Vikram Ispat is the only gas based sponge iron player selling its entire production in the
market, as the company has no steel making facility. In FY06, sponge iron constitutes approx.
9% to the total turnover of the company.
12
B&K RESEARCH
OCTOBER 2006
Coal based sponge iron producers

Jindal Steel & Power Ltd.
Worlds largest coal based
sponge iron plant having
capacity of 1.37 MTPA
Jindal Steel & Power Limited (JSPL) with an installed capacity of 1.37 MTPA (10 kilns) in
Raigarh, Chhattisgarh is the worlds largest coal based sponge iron plant today. JSPL, being
integrated backwardly has its own captive raw material resources (iron ore & coal) and power
generation, which in turn has enabled the company to insulate itself from the market fluctuations
of raw material prices and to control quality and enhance production. Presently, JSPL is using
in-house Jindal technology for producing sponge iron.
Captive raw materials insulating JSPL from market fluctuations
Iron ore: JSPL is operating a captive iron ore mine at Tensa in Orissa. The requirement of
iron ore is met from companys Tensa mines.
Non-coking coal: The total requirement of non-coking coal of +6-20 mm size is met from
the captive colliery (equipped with coal washery with the capacity of 6 MTPA) developed
by JSPL at Tamnar in Chhattisgarh. JSPL saves on transportation owing to having its
plant near captive coal mines.
Dolomite: Dolomite is sourced from Baradwar in Chhattisgarh (about 70 km from Raigarh).
Captive power generation: JSPL also saves on power front due to captive power generation
based on flue gases generated in sponge iron making.
Sponge iron
1.6
1.4
Increased production of DRI

will be used internally for
ramping up of production of
steel
(mtpa)
1.2
Capacity
Sales
Production
Captive cons .
1
0.8
0.6
0.4
0.2
FY06
FY05
FY04
FY03
FY02
FY01
*Increased capacity in FY05 to 1.37mtpa from 0.65mtpa

Source: JSPL, annual reports
Four new kilns for making sponge iron have been added in 2005 which has raised the
capacity from 0.65 MTPA to 1.37 MTPA. The increased production of sponge iron will be
consumed internally for ramping up production of steel.
13
B&K RESEARCH
OCTOBER 2006
Monnet Ispat
Monnet Ispat Limited (MIL), promoted jointly by Sandeep Jajodia and Jindal Strips in 1990
manufactures sponge iron, steel billets and various finished steel products near Raipur in
Chhattisgarh. MIL is one of the largest coal-based sponge iron producer in India (installed
capacity: 0.3 MTPA) backed by captive resources of raw material viz. coal, iron ore and
captive power.
Production capacity expected

to increase to 0.8 MTPA by
3QFY07
Over the years, MIL has steadily ramped up capacities from 0.1 MTPA of sponge iron in
FY00 to 0.3 MTPA in FY04. MIL is setting up six sponge iron kilns (4 kilns of 350 TPD and
2 kilns of 100 TPD each) with total capacity of 0.5 MTPA which is expected to commence
production in the beginning of 3QFY07.
The company also has captive power plant at Raipur (60 MW) operating on flue gases from
sponge iron kilns which reduces companys dependence on state electricity boards. MIL is
also in the process of installing 90 MW captive power plant at Raigarh operating on char and
coal fines from sponge iron plant and captive coal mine.
Backward integration gives competitive advantage

Captive coal mines insulate
MIL from market fluctuations
of coal prices
Coal Mine Raigarh: This underground mine has extractable reserves of 86 mn tonnes
(estimated reserves are 126 mn tonnes). The quality of coal is better than open-cast mine.
MIL started the production of coal in April 2005 and is currently mining at the rate of 0.6
MTPA and plans to ramp it up to 1.2 MTPA in order to meet the increased demand of coal
from Raigarh project. Most of the companys in-house requirements for coal would be met
from the captive sources.
Iron Ore Mine Orissa: The mine has estimated 30 mn tonnes of extractable iron ore
reserves which will be entirely for captive use.
Sponge iron
0.4
0.3
Capacity
Sales
Production
Captive cons.
mtpa
0.3
0.2
0.2
0.1
0.1
FY06
FY05
FY04
FY03
FY02
FY01
0.0
Source: Monnet Ispat, annual reports
Over the years, MIL has started increasing the usage of sponge iron for captive consumption.
Sponge iron contributes approx. 25% to the total turnover of the company.
14
B&K RESEARCH
OCTOBER 2006
Coal based sponge iron producers

Company
Present capacity
Production
Coal cost/
Iron ore cost/
(tonnes)
(FY05)
tonne DRI
tonne DRI
1,370,000
692,682
1,050
1,575
Captive raw materials, produces steel.
Tata Sponge Iron Ltd.
390,000
223,686
3,750
2,880
Acquired coal mines, get operational by FY09.
Monnet Ispat Ltd.*
300,000
240,133
1,375
2,400
Captive raw materials, iron ore mines get
Jindal Steel & Power
Remarks
operational soon. produces steel.

GSAL (India) Ltd.
220,000
68,967
3,479
5,526
No captive resources.
Raipur Alloy & Steel
210,000
91,767
2,800
6,400
Acquired iron ore & coal mines, will get

operational in future, produces steel.
Singhal Enterprises (P)
198,000
134,537
3,450
5,280
Bihar sponge Iron Ltd.
180,000
140,998
3,250
4,370
Sunflag Iron & Steel Co.
150,000
134,192
3,103
6,720
No captive resources, produces steel.
HEG Ltd.
120,000
87,141
3,019
5,965
Orissa Sponge Iron Ltd.
100,000
108,116
2,750
4,740
*Increasing its capacity to 800,000 tonnes in FY07.

Source: Industry sources.
Cost structure (Coal based sponge Iron producers)
d iron
Acquire e s
o r e m in
Others
Power
Fuel oil
Dolomite
Acquired coal
mines
Plants with
No
Linkages(4th)
Linkage-Iron
ore(3rd)
Non-CokingCoal
Iron Ore
Captive coal
mines(2nd)
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
Captive Raw
Materials(1st)
(Rs)
Secured Future
Struggling to
Survive
Source: B&K Research

Note: Jindal Steel & Power falls in 1st, Monnet Ispat in 2nd and Tata Sponge in 3rd category.
Players like JSPL having

captive raw materials
produce at a very low cost and
have a secured future
The players like Jindal Steel & Power who has captive raw materials incurred approx. Rs.
2,900/tonne variable cost in making sponge iron against approx. Rs. 8,800/tonne for players
having no captive raw material sources. Monnet Ispat has acquired iron ore mines to reduce
its variable cost/tonne of sponge iron further. Tata Sponge is moving towards second level,
as the company has recently acquired coal mines which will insulate the company from the
market fluctuations and helps in reducing coal cost. Increasing prices of raw materials make
small players vulnerable and many players have shutdown temporarily.
Future prospects
The sponge iron industry has been posting strong growth over the last five-six years. The
growth of Indian sponge iron industry will be propelled mainly by coal based sponge iron
producers. This is due to availability of abundant raw material domestically and low capital
required in installing sponge iron plant. There is limited scope for new gas based sponge iron
15
B&K RESEARCH
OCTOBER 2006
unit coming in near future. The existing 3 players may plan for further expansion but it
depends on the future availability of natural gas which is in short supply currently. The
availability of natural gas is expected to improve for Ispat Industries and Vikram Ispat by end
2007, as the Dahej-Uran gas pipeline is slated to be commissioned by then.
On the raw material front, the supply of basic inputs for coal based sponge iron, iron ore and non-
Demand for sponge iron

expected to grow due to
availability of abundant raw
material domestically,
growth being propelled by
Coal based DRI producers and
the future will belong to the
players who have captive
sources of raw materials
coking coal are abundant. But increasing iron ore prices and inferior quality of non-coking coal
poses a problem for DRI producers. Increasing freight and power cost also poses problem for
small producers. Therefore, the future of sponge iron will belong to the players who have captive
sources of raw materials which will insulate them from market fluctuations. Presently, only Jindal
Steel & Power and Monnet Ispat have captive resources of both iron ore and coal (production
from iron ore mines of Monnet Ispat will commence soon). Tata Sponge has recently acquired
115 mn tonnes mineable coal deposit in Orissa which will be functional by FY09.
The demand for sponge iron is expected to remain firm, as it directly depends on the demand
of steel which is expected to reach more than 110 mn tonnes by 2020. With increasing share
of secondary producers which uses mix of sponge iron and scrap in making steel and reduced
domestic availability of high quality scrap and its increasing cost, the future demand for
sponge iron looks promising.
16
B&K RESEARCH
OCTOBER 2006
Global scenario
Global production of sponge iron (DRI/HBI) has been strong over the last decade. The steel
industry globally is using about 25% of the alternative iron sources like DRI/HBI to produce high
quality steels in the EAFs. DRI is now recognised as a high purity, top quality charge material
throughout the world which has been reflected by the strong growth of sponge iron (DRI/HBI)
production which has risen to 56 MTPA in 2005 as against about 40 MTPA in 2001.
World DRI production
70
60
( Mt)
50
40
30
20
10
2006E
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
Source: Midrex Technologies, Inc & B&K estimates
EAF production Increasing share in steel making

Increasing steel production
through EAF route and low
availability of scrap boost
demand for sponge iron
The production through the EAF route has gone up from about 26.6% in 1988 of the global
production to about 31.7% in 2005. Outside China, very few new blast furnaces have been
built in recent years. EAF steelmaking continues to grow because of its capital and operating
cost advantages vis--vis the integrated route. This growth results in increased demand for
EAF charge materials which includes scrap, DRI/HBI and pig iron. Since world steel production
was essentially flat from 1980-95, the growth rate of the obsolete scrap supply leveled off
which led to increase in their prices. Amidst these limitations, demand for DRI increased and
its use in EAFs increased by almost 12 MT in 2000-05. We expect this trend to continue in
future.
Geographical distribution
Sponge iron producers are mainly concentrated in Latin America (including Mexico), Middle
East and Asian region. Latin America is still the largest producers of DRI in the world but over
the last three years, their share has declined from 36% of total world DRI production to 34%
in 2005. This is due to increasing prices of natural gas and larger growth in the coal based DRI
production by Indian producers which led to overall increase in Indias share to 20%.
17
B&K RESEARCH
OCTOBER 2006
Production Geographical distribution
(Mn tonnes)
2000
2001
2002
2003
2004
2005
Latin America
16.0
14.1
16.0
17.0
19.0
19.3
Argentina
1.4
1.3
1.5
1.7
1.7
1.8
Brazil
0.4
0.4
0.4
0.4
0.4
0.4
Mexico
5.8
3.7
4.9
5.6
6.5
6.0
Peru
0.1
0.1
0.0
0.1
0.1
0.1
Trinidad & Tobago
1.5
2.3
2.3
2.3
2.4
2.1
Venezuela
6.7
6.4
6.9
6.9
7.8
9.0
12.1
12.1
13.0
13.9
15.3
15.9
Egypt
2.1
2.4
2.5
2.9
3.0
2.9
Iran
4.7
5.0
5.3
5.6
6.4
6.9
Libya
1.5
1.1
1.2
1.3
1.6
1.7
Qatar
0.6
0.7
0.8
0.8
0.8
0.8
Saudi Arabia
3.1
2.9
3.3
3.3
3.4
3.6
10.1
10.6
11.3
13.8
14.7
15.3
Australia
0.6
1.4
1.0
2.0
0.7
Myanmar
0.0
0.0
0.0
0.0
0.0
China
0.1
0.1
0.2
0.3
0.4
0.4
India
5.4
5.6
6.6
7.7
9.4
11.1
Indonesia
1.8
1.5
1.5
1.2
1.5
1.4
Malaysia
1.3
1.1
1.1
1.6
1.7
1.4
New Zealand
0.9
0.9
0.9
1.0
1.0
1.0
North America
2.7
0.1
0.7
0.7
1.3
0.8
Canada
1.1
0.2
0.5
1.1
0.6
US
1.6
0.1
0.5
0.2
0.2
0.2
1.9
2.5
2.9
2.9
3.1
3.3
1.9
2.5
2.9
2.9
3.1
3.3
1.5
1.6
1.6
1.5
1.6
1.8
1.5
1.6
1.6
1.5
1.6
1.8
0.5
0.2
0.5
0.6
0.6
0.4
0.5
0.2
0.5
0.6
0.6
0.4
44.7
41.3
46.0
50.5
55.6
56.8
Middle East/N. Africa
Asia/Oceania
Former USSR/Eastern Europe

Russia
Sub-Saharan Africa
South Africa
Western Europe
Germany
World Total
Source: Midrex Technologies, Inc.
18
B&K RESEARCH
OCTOBER 2006
Major DRI Producing Blocs (2002)
Major DRI Producing Blocs (2005)
6% 3% 1% 1%
6% 3%1% 1%
36%
14%
34%
20%
10%
7%
29%
28%
Latin America( including Mexico)

As ia/ Oceania(excluding India)
Former USSR/Eas tern Europe
North America(US & Canada)
Middle Eas t/ North Africa

India
Sub-Saharan Africa
Wes tern Europe
Source: Midrex Technologies, Inc
Production processes
85% of sponge iron produced
through gas based process in
gas rich areas like Middle
East, Latin America and
Russia
Globally, about 85% of the sponge iron is produced through gas based process mainly in large
gas rich areas like Middle East, Latin America and Russia. Coal based process has increased
from less than 10% in the 1990s to about 15% in 2005 due to the proliferation of small rotary
kiln plants in India. Among different production processes, Midrex Technology continues to
dominate the world scenario with more than 60% market share since 1987.
40
140
35
30
120
100
25
20
80
60
15
10
40
Utilisation(%)
Capacity & production
World DRI capacity utilisation by process (2005)
20
5
0
0
Midrex
Capacity(Mt)
HYL
Finmet
Production(Mt)
Coal-bas ed
Utilis ation (%)
Source: Midrex Technologies, Inc
India leads the way

Growth in Indian sponge iron
industry due to setting up
large number of small
capacity rotary kilns
Sponge iron growth in 2005 was entirely due to a number of small capacity rotary kilns
started in India. India led the world in sponge iron production with 11.1 million tonnes
followed by Venezuela with 8.9 million tonnes, Iran with 6.9 million tonnes and Mexico with
6.0 million tonnes in CY05.
19
B&K RESEARCH
OCTOBER 2006
India
Vanezuela
Iran
Mexico
2006E
2005
2004
2003
2002
2001
16
14
12
10
8
6
4
2
0
2000
Production (Mt)
Top 5 Global DRI producers
Saudi Arabia
Source: Midrex technologies, Inc & B&K estimates
New capacity on the way

Even though very little sponge iron capacity has been added over the past few years outside of
India, the strong surge in its price has encouraged investment in new capacity. As at the end of first
quarter 2006, over 15 million tonnes of new gas based DRI capacity has been contracted (Midrex
process), the first of these plants will begin operation by late 2006. The newly contracted capacity
has been focused in areas where inexpensive natural gas is abundant, including the Middle East
and South America, as well as projects in Malaysia and Russia. This new investment was driven by
sustained high prices of alternate iron and of low residual, high quality scrap steel.
20
B&K RESEARCH
OCTOBER 2006
Tata Sponge Iron (Rs. 113)
Share Data
Reuters code
Not Rated
TTSP.BO
Tata Sponge Iron (TSIL) is the largest coal based sponge iron producer in Eastern India with
IPIT IN
total installed capacity of 390,000 TPA. The company is ideally located in close proximity of
Market cap. (US$ mn)
36
iron ore mines in Keonjhar, Orissa. Recently, the company has acquired a coal block on a 30-
6m avg. daily turnover (US$ mn)
0.3
year lease basis in Orissa along with two more associates and is expected to become operational
Bloomberg code
Issued Shares (mn)

Performance (%)
15.4
by FY09 which will help reducing the companys coal cost significantly. The company has also
increased its power generation facility from 7.5 MW to 26 MW which insulates its dependence
1m
3m
12m
Absolute
(4)
(1)
(36)
management recently. Following are the key highlights:
Relative
(10)
(19)
(56)
on state electricity boards and increase earnings by selling surplus power. We spoke to the
Major shareholders (%)
Increasing production through the secondary route

Increase in steel production through the secondary route (EAF, IF), which uses hot metal
Promoters
41
(pig iron), sponge iron/scrap as their basic raw materials, accounts for 48% of the total
Institutions
steel output. It has grown at a CAGR of 18% during FY01-05. The trend is expected to
Public & Others
continue due to rising availability of coal based sponge iron produced from domestically
56
Relative performance
available raw material.
350
300
250
200
150
100
50
0
Sponge iron is fast replacing imported steel scrap in secondary steel making
Production of steel scrap in India is low at 15-20% of its consumption due to longer
product life cycle, as the country is in developing phase and the consumption pattern is
tilted in favour of infrastructure and construction rather than consumer durables.
Jun-06
Tata Sponge Iron

(Actual)
Sens ex
sponge iron is fast replacing imported steel scrap due to low cost of production, as non-
Oct-06
Mar-06
Nov-05
Aug-05
Apr-05
Dec-04
Therefore, secondary steel makers have to depend on imported steel scrap. Coal based
coking coal and iron ore (two critical raw materials) are domestically available and its
production is rising.
Own power generation

By realising the importance of captive power plant for having an edge in the cost competitive
markets, recently TSIL has expanded its power generation facilities by installing two more
power plants (18.5 MW) in Kiln 1 and Kiln 3 increasing total capacity from 7.5 MW to 26
MW. The new 18.5 MW power plant is expected to get operational by October 2006.
TSILs total power requirement is about 10 MW for the current capacity. Sale of surplus
power (made an arrangement to sell 10-12 MW of power @ Rs. 3.15/unit) will contribute
additional revenue (approx. 160 mn per year) from FY07 itself.
Captive coal block: A reality

Recently, TSIL has acquired a coal block on a 30-year lease basis in Orissa along with two
more associates. The estimated mineable coal deposit is about 115 mn tonnes. TSILs
share is 51%. The coal block is expected to become operational by the end of FY09. This
will insulate the company from volatility in non-coking coal prices and reduce its coal cost
significantly which presently constitutes about 44% of total expenses.
Strategic location
TSIL is located at Bilaipada near Joda, in the Keonjhar District of Orissa. The plant is
ideally located in the close proximity of iron ore mines (25 kms away from plants) and
sponge iron consumers of Eastern region which saves on transportation cost.
21
B&K RESEARCH
OCTOBER 2006
Over capacity due to smaller players

The situation of over capacity exists due to emergence of many small coal based players
which keep a cap on the prices of sponge iron.
Increasing prices of iron ore and non-coking coal

Though, the company has leased out some mining assets to Tata Steel Ltd. for operation
of its Khondbond iron ore mine for its captive use and are better placed than the players
having no captive sources but then also the prices are expected to increase further due to
high demand both at domestic as well as global level, particularly from China which
squeezes the margin of the company. Non-coking coal prices are also increasing and we
expect the prices to be firm in near future.
Raw material cost

2,800
2,600
2,400
2,200
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
FY08E
FY07E
FY06
FY05
FY04
FY03
FY02
FY01
FY00
Coal (Rs /ton)

Iron Ore (Rs /ton)
Source: Company & B&K research
22
B&K RESEARCH
OCTOBER 2006
Business background
Tata Sponge Iron (TSIL) was incorporated in 1982 as a Joint Venture of Tata Steel and
Industrial Promotion & Investment Corporation of Orissa Ltd. (IPCOL) for the production
of sponge iron, based on TISCO-Direct Reduction (TDR) Technology. The plant is located
at Bilaipada near Joda, in the Keonjhar district of Orissa. In 1991, Tata Steel acquired
IPICOLs stake and TSIL became its subsidiary.
Growth path
450
(000 tons)
400
350
Production Capacity
300
250
200
150
100
50
FY 06
FY 98
FY 91
FY 86
Source: Company
The plant was initially designed for a production capacity of 90,000 TPA and subsequently
the capacity was enhanced to 120,000 TPA in 1990-91 by entering into foreign collaboration
with Lurgi, Germany in 1987-89. The company later to meet the growing demand of sponge
iron doubled its capacity by adding another Kiln of equivalent capacity in 1998-99, bringing
the capacity to 240,000 TPA.
In December 2001, TSIL commissioned a 7.5 MW captive power plant to produce electricity
from the waste heat of exit gases of its Kiln No.2.
Capacity expansion
Increased installed capacity
of sponge iron to 390,000 TPA
and captive co-power
generation facilities to 26 MW
Recently, TSIL expanded its capacity by installing 3rd Kiln having a capacity of 150,000
TPA. As a result, the companys sponge iron making facility has increased from 240,000
TPA to 390,000 TPA. The facility commenced production from March 2006. Also, TSIL
has set up power generation facilities of 18 MW by recovering the waste heat of the kilns
which is expected to be operational from October 2006. The total cost incurred was
approx. Rs. 1.9 bn.
Acquired a coal block on 30

year lease basis in Orissa
Recently, TSIL has acquired a coal block on a 30 year lease basis in Orissa along with two
more associates (SPS Sponge Iron Ltd. and Messrs Scaw Industries Ltd.). The estimated
mineable coal deposit is about 115 mn tonnes. TSILs share is 51%. The coal block is
expected to become operational by the end of FY09. The total expected cost incurred on
coal mines is approx. Rs. 3 bn.
In-house TDR Technology

Tata Steel developed in-house technology based on Coal to produce sponge iron. It was the
first sponge iron plant in India to receive the ISO-9002 and the ISO-14000 certifications.
23
B&K RESEARCH
OCTOBER 2006
Process
Rotary kiln cross-section
Source: Company
Iron ore (hematite) and non-coking coal are charged into a rotary kiln in requisite proportion
with dolomite to produce sponge iron. Coal plays a dual role in the process by acting as a
redundant as well as fuel for providing heat to maintain the requisite temperature inside the
kiln at 950-1050C. The reduction process occurs in solid state. In this reduction process,
coal is combusted in a controlled manner and it converts to carbon monoxide to remove
oxygen from the iron ore. At the end of the process, iron ore is optimally reduced and
discharged to a rotary cooler for cooling below 120C and finally sponge iron comes out of
the kiln. Power is generated by using the waste heat of the hot spent gases of the kiln.
Source: Company
Valuations
Full ramp-up of 3rd kiln by October 2006 would provide volume CAGR of 38% during
Potential to grow earnings in

long-term
FY06-08E. 26 MW of captive power and sale of approx. 10-12 MW surplus power would
add to earnings. Coal mines (expected to start by FY09) would reduce coal cost (currently
form 44% of total cost). At the current price of Rs. 113, the stock is trading at 6.2x FY07E
and 4.1x FY08E earnings. We feel that the company has potential to grow earnings in longterm. We dont have rating on the stock.
24
B&K RESEARCH
OCTOBER 2006
Financials
Production
The company is poised for major growth in the production of sponge iron in the coming two
years post increasing its installed capacity to 390,000 TPA.
Production
Source: Tata Sponge, Annual Reports, B&K estimates
Revenues
Revenues of TSIL are expected to increase at 40% CAGR over the next two years due to
recent capacity expansion from 240,000 TPA to 390,000 TPA. The company has shown a
decline of 20% in its revenue in FY06 due to lesser production (due to higher ash content in
non-coking coal received by Coal India Limited which reduces productivity and increasing
prices of both iron ore and non-coking coal) as well as due to pressure on realisation front.
Net sales and growth
Cost
The average cost of iron ore is expected to remain firm in the next two years. More of noncoking coal is required due to higher % of ash content in it which needs to be washed to
reduce the ash content to an acceptable level which will increase its prices.
25
B&K RESEARCH
OCTOBER 2006
Raw Material Cost
Margins
Margins of the company have declined in FY06 due to lower realisation coupled with the
higher input prices. The company is targeting high growth in revenues to improve margins.
We expect realisation to be comparatively better in the next two years. Margins will be under
pressure due to higher iron ore and coal prices. The company has been allotted a coal mine in
Orissa but will be able to get advantage only from FY09.
EBITDA and Margins
EBITDA/ton, Cost/ton, Price/ton
Capex
Recently, TSIL added a 150,000 TPA sponge iron unit and 18.5 MW waste gas recovery
based captive power plant with an investment of approx. Rs. 1.9 bn (expected to be fully
ramped up by October 2006). TSIL has also acquired a coal block on a 30 year lease basis in
Orissa along with two more associates. The company will use its reserves as well as take debt
to finance projects. The total expected cost incurred on coal mines is approx. Rs. 3 bn. The
company plans to spend approx. Rs. 400 mn for development of colliery in FY07.
26
B&K RESEARCH
OCTOBER 2006
PAT and Margin

We expect PAT to increase by 38% CAGR in the next two years driven by higher volume
growth (due to capacity expansion) and sustainability on realisation front.
PAT and margin
Improving quarterly results

Net sales
Source: Tata Sponge, Annual Reports
First quarter of FY07 shows some sign of improvement. Net sales starts increasing due to
installation of 3rd kiln of 150,000 tonnes capacity in the last two quarters. EBITDA and PAT
margin also improved on q-o-q basis. With improvement in prices, we expect the trend to
continue.
27
B&K RESEARCH
OCTOBER 2006
EBITDA and margin
PAT and margin
Source: Tata Sponge, Annual Reports
Raw material cost
Source: Tata Sponge, Annual Reports, B&K Estimates
28
B&K RESEARCH
OCTOBER 2006
Income Statement
Cash Flow Statement
Yr. ended 31 Mar. (Rs. m) FY05

Net sales
Growth (%)
Operating expenses
Operating profit
FY06 FY07E
FY08E
FY06 FY07E
FY08E
2,304
1,852
2,720
3,618
Pre-tax profit
951
343
429
650
36.2
(19.6)
46.9
33.0
Depreciation
71
75
93
105
(1,375)
(1,546)
(2,380)
(3,127)
358
(54)
44
(16)
929
306
340
491
Total tax paid
(552)
(88)
(171)
(230)
80
160
Cash flow from oper. (a)
828
276
396
509
Capital expenditure
(300)
(1,294)
(639)
(700)
(300)
(1,294)
(639)
(700)
528
(1,018)
(243)
(191)
Debt raised/(repaid)
(1)
700
825
825
(92)
(116)
(132)
(70)
Other operating income
Chg in working capital
EBITDA
929
306
420
651
Growth (%)
75.1
(67.1)
37.4
54.9
Depreciation
(72)
(76)
(95)
(106)
Other income
94
113
120
125
952
344
445
670
Interest paid
(1)
(1)
(16)
(20)
Dividend (incl. tax)
Pre-tax profit
951
343
429
650
Cash flow from fin. (c)
(93)
583
693
755
Net chg in cash (a+b+c)
434
(434)
450
563
FY06 FY07E
FY08E
EBIT
(before non-recurring items)

Pre-tax profit
Cash flow from inv. (b)

Free cash flow (a+b)
951
343
429
650
Tax (current + deferred)
(342)
(121)
(152)
(230)
Net profit
609
221
278
420
EPS (Rs)
39.5
14.4
18.0
27.3
Adjusted net profit
609
221
278
420
EPS growth
77.2
(63.6)
25.3
51.3
Growth (%)
77.2
(63.6)
25.3
51.3
EBITDA margin
40.3
16.5
15.0
17.2
Net income
609
221
278
420
EBIT margin
41.3
18.5
15.9
17.7
ROCE
73.2
17.4
15.2
16.6
(34.4)
46.3
62.9
65.0
FY06 FY07E
FY08E
(after non-recurring items)
Balance Sheet
Current assets
Investments
Net fixed assets
Total assets
Current liabilities
FY06 FY07E
FY08E
Key Ratios
Yr. ended 31 Mar. (%) FY05
Net debt/Equity
Valuations
799
498
1,017
1,758
1,165
2,384
2,930
3,525
PER
2.8
7.8
6.2
4.1
1,972
2,890
3,955
5,292
PCE
2.5
5.8
4.7
3.3
Price/Book
1.3
1.2
1.0
0.9
Yield (%)
6.2
3.6
3.6
3.6
Yr. ended 31 Mar. (x)
FY05
440
477
510
672
707
1,532
2,357
EV/Net sales
0.6
1.3
1.0
0.8
Other non-current liabilities
205
235
235
235
EV/EBITDA
1.4
7.9
6.6
4.7
Total liabilities
652
1,419
2,277
3,264
FY06 FY07E
FY08E
Share capital
154
154
154
154
1,166
1,317
1,524
1,874
1,320
1,471
1,678
2,028
Total equity & liabilities 1,972
2,890
3,955
5,292
Return on equity (%)
Total Debt
Du Pont Analysis ROE

Yr. ended 31 Mar. (x)
Reserves & surplus

Shareholders funds
FY05
Net margin (%)
26.4
12.0
10.2
11.6
Asset turnover
1.3
0.8
0.8
0.8
Leverage factor
1.6
1.7
2.2
2.5
56.6
15.9
17.6
22.7
29
B&K RESEARCH
OCTOBER 2006
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Sponge Iron Industry B K Oct 06

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Batlivala & Karani

4th October 2006

Sponge Iron Industry Growing with Steel

Growth in steel production

Crude steel production

Domestically available raw

Crude steel production

% share of secondary producers

SPONGE IRON INDUSTRY

Continued substitution demand for scrap

Sponge iron replacing

Source: AML Steel

Sponge iron price move in line

Source: Metal Bulletin, JPC

SPONGE IRON INDUSTRY

Production Processes & Technologies

Coal based process

Gas based process

Fe (Metallic) Metallisation Carbon

0.2-0.3 .025-.03 max

.04 max 6-200 mm

SPONGE IRON INDUSTRY

FY06 FY07E FY08E FY09E FY10E

Source: B&K Estimates

Gap expected to widen further

Sponge Iron production

Source: JPC & B&K Estimates

SPONGE IRON INDUSTRY

Raw materials scenario

Vast reserves of non-coking

Players located near coal

Increasing coal prices put

SPONGE IRON INDUSTRY

Vast reserves of medium

Source: IBM, Nagpur

Source: IBM & MMTC

SPONGE IRON INDUSTRY

Additional income to Coal

Module-wise power position

Raw material facility

Raw material availability and regional production

SPONGE IRON INDUSTRY

Chhattisgarh, Orissa, West

SPONGE IRON INDUSTRY

The Gas based Sponge Iron producers

Raw materials linkages

HBI produced for captive consumption

Production mainly for captive

Source: Essar Steel, annual reports

SPONGE IRON INDUSTRY

Ispat Industries Ltd.

Raw materials dependence

Production mainly for captive

Source: Ispat Industries, annual reports

SPONGE IRON INDUSTRY

Vikram Ispat (Unit of Grasim Ind.)

Entire production is sold in

Source: Grasim Industries, annual reports

Less availability of natural gas rising input cost

SPONGE IRON INDUSTRY

Coal based sponge iron producers

Captive raw materials insulating JSPL from market fluctuations

Dolomite: Dolomite is sourced from Baradwar in Chhattisgarh (about 70 km from Raigarh).