Hyderabad: India’s largest iron ore producer NMDC Ltd is deferring a Rs1,200 crore investment in the struggling Sponge Iron India Ltd because of a steep drop in global sponge iron prices.
NMDC, which will merge Sponge Iron India into itself by the year-end, had planned to expand the company’s production capacity fourfold and diversify its operations to include manufacturing of steel products for the construction sector.
“We are a little careful about the whole thing” because the prices of sponge iron are quite low now, said Rana Som, chairman and managing director of both NMDC and Sponge Iron India.
“Things are a little difficult and we have to redo our financial calculations,” Som added.
The Union government in May 2008 cleared the merger of NMDC with Sponge Iron India to turn around the sponge iron firm with financial support and an assured supply of iron ore.
Sponge Iron India has been facing an acute shortage of iron ore in the past few years as Indian producers shipped more overseas to take advantage of rising prices. As a result, it has not been able to use at least 75% of its production capacity of 60,000 tonnes a year at its plant in Andhra Pradesh’s Khammam district.
NMDC had firmed plans to enhance its capacity to 260,000 tonnes a year but has deferred the plan as the price of sponge iron in global markets has declined by about half to Rs13,500 per tonne, said Som. “If we invest Rs1,200 crore... we have to have an attractive (selling) price which can bear the interest and depreciation cost. Otherwise, the whole venture will be unproductive,” Som said.