Sponge iron output in India has remained firm despite a rally in South African coal prices and a decline in domestic coal dispatches to producers, according to market sources.
India produced 3.3mn t of sponge iron in October last year, up by 4pc from the same month a year earlier, according Joint Plant Committee data.
And output has remained strong in recent weeks, supported by a decline in the role of coal in the production process and by firm demand, sources said.
"[The] sponge iron market is doing well. Demand is pretty good and I do not think there is any production cut. We have one month [of coal] stock [and are] planning to buy whenever [the] coal market is soft," a producer source in India said.
Domestic dispatches of coal to Indian sponge iron producers fell sharply to 740,000t in December, down from 1mn t in the same month of 2020.
But this has been partly offset by a reduction in the share of coal in the sponge iron production process.
Coal accounted for 77pc of sponge iron production in October 2021, down by four percentage points from October 2020, Joint Plant Committee Data show.
Price impact muted
Sponge iron output has also remained strong despite rocketing South African coal prices in recent weeks. India's sponge iron industry typically prefers South African NAR 5,500 kcal/kg coal because of its high carbon content.
But along with other off-speculation grades, prices for this product have rallied, buoyed by extremely tight supply and significant rail delivery issues in South Africa.
Argus' fob Richards Bay NAR 5,500 kcal/kg coal assessment stood at $138.43/t on 21 January, up by 10pc on the week and 44pc above the average price last year.
But this has had little impact on coal demand from sponge iron producers so far, as customers are willing to pay higher prices.
"The higher Richards Bay coal prices have increased the cost of production but the sponge [iron] producers are passing the same [costs] to the end customer. The sponge prices have gone up but since demand is there, the high prices are also getting absorbed," a second producer source said.
