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Sponge Iron
A nerve for steelmaking

The story of sponge iron also known as Direct Reduced Iron (DRI) industry is very interesting as far as India goes. The three-decade old this industry came into existence all on a sudden when mini steel plants were looking out raw materials randomly. Since, India has adequate coal deposits, its utilisation for steel plants was considered of prime importance. Production of coal based sponge iron in the beginning was taken as a viable option. Sponge iron industry grew at very slow speed till the mid of 1980 due to government’s restrictive licensing. The 1985 proved as a historical year for the industry in general and the steel industry in particular. In this year the DRI production was delicensed and since then the industry started growing rapidly to reach today’s level. DRI is a high quality metallic product obtained from iron ore, pellets etc. as a feedstock in the Electric Arc Furnaces (EAFs), blast furnace (BF) as well as other iron and steelmaking process. Hot briquatted iron (HBI) is a denser and compacted form of sponge iron. There are four main sources of metallics for steel making and they are scrap, hot metal from blast furnaces (BFs, including its variants) as well as from smelting reduction (SR) process, DRI/HBI (Hot briquatted iron) and iron carbide. Traditionally, scrap has been the main feed to electric arc furnaces (EAFs). With more and more continuous casting (CC) in use, the applications of scrap has reduced drastically. Even in a developing country like India, CC has been extensively used to enable steel to remain competitive. Today, steel industry is facing a situation of less generation of scrap accompanied by greater demand. Neverthless, it needs to be emphasized that scrap will continue to remain the major feed for EAFs. At the same time, the quality of scrap may at best remain at today’s level, and pre-reduced material will gradually substitute more and more scrap in making high quality steels. Consequently, the supply of sponge iron is expected to grow to the level of 50MTPA in 2010 against 30 MTPA, today. Liquid hot metal and solid pig iron would also be used to larger extents. Chattisgarh is endowed with rich deposits of non coking coals suited to sponge iron manufacturing. Iron ore is also available in neighboring state of Orissa. As a result, several mini sponge iron plants (nearly 30) have started in this region and many others are in pipeline.

The industry growth
Since 1980, the sponge iron industry took a “U” turn and the players of the industry were very reluctant to contribute significantly for steelmaking looking at the bright prospects of the steel industry in India and neighboring countries. Sponge Iron India Ltd. was outcome of the players’ enthusiasm who accepted the challenge for DRI production. This was the first sponge iron plant in the country which was set up at Paloncha in Andhra Pradesh with a capacity of 0.039 MTPA in 1980. Between 1980 and 1988, there were only three plants set up namely Orissa Sponge Iron Ltd. - capacity of 0.1 MTPA, Ipitata Sponge Iron - capacity of 0.09 MTPA and Sunflag Iron Steel Ltd. with plants were set up to produce sponge iron for captive consumption. In 1989, the first merchant sponge iron plant of Bihar Sponge Iron Ltd. with a capacity of 0.15 MTPA was set up. In the late eighties, domestic producers were enthused by the discovery of large reserves of natural gas, started setting up gas based sponge iron plants. The first one was set up by Essar Steel Ltd., at Hazira in Gujarat in 1990. Among the three gas based sponge iron producers, Essar Steel has set up the world’s largest HBI plant with a capacity of 1.76 MTPA (now expanded to 2.4 MTPA and plans are underway to expand further). Ispat Industries Ltd. was the first in the world to install the Megamod unit which was globally the largest single module sponge iron plant with a capacity of 1.1 MTPA at Dolvi in Maharashtra and was globally the first sponge iron plant to install HYL-III technology from HYLSA, Mexico. Since coal was adequately available in India, production of coal-based sponge iron was considered as a viable option. Lately, a number of DRI plants were established by a number of Toms a Harrys in urban and rural areas. The coal-based sponge iron units have shown high growth in the last two decades with a combined present capacity of 4.5 MTPA. India, today, is the highest producer of coal-based sponge iron in the world. Jindal Steel & Power Ltd. is the largest producer of coal based sponge iron in Asia and second largest in the world. It has the world’s largest coal-based sponge iron capability at its Raigarh plant with a capacity of 650,000 TPA.

Quantum of units
It’s hard to reach a particular figure which indicate the total number of sponge iron units exist in India because 60 per cents of the sponge iron units are coming from small scale industries. Many of them are from unorganized sector too. There are certain unreported fly by night companies. Hence, it is quite impossible to ascertain the total number.

The installed production capacity of sponge iron in India has increased from 1.52 MTPA in 1990-91 to over 7 MTPA in 2002-03. Sponge Iron production by secondary producers between April 2003-February 2004 stood at 7,301 thousand tons compared to that of 6,287 thousand tons in the same period the last year. Thus, the industry grew approximately at the rate of 30 per cent. Overall growth in production in 2002-03 has been about 22 per cent over the previous year. While the coal-based units have shown an impressive growth of 32 per cent in production in 2002-03, gas-based units recorded a growth of about 40 per cent. The small producers of sponge iron have registered a growth of about 28.75 per cent. All these point out to the substantial growth in the demand of sponge iron in the country.

India became the largest producer in the world in 2002, a performance repeated two years in succession with an output of 6.53 mt. According to an expert of the industry, a few new steel ventures in the secondary sector are coming up with a combined installed capacities of about 6 MTPA. This is likely to increase the demand for steel scrap and sponge iron. The overall production of steel is expected to grow at an annual rate of 10 per cent in future. The indigenous demand of sponge iron has been estimated to reach the level of 12.77 MT in 2004-05. 
India has once again emerged as the largest producer of sponge iron in the world for the calendar year 2003 with a record production of 7.7 million tons, showing a significant growth of 17.5 per cent. India has thus established a clear lead of 0.8 million tons over Venezuela which is the second largest producer at 6.9 million tons and Maxico at third position with 5.6 million tons output. The world production of sponge iron too has risen from 45.10 million tons in 2002 to 49.45 million tons in 2003 (growth 9.64 per cent). The pressure on steel prices partly eased during April, 2004 primarily in respect of flat products where globally also, there has been a decline in price of HR coils. However, prices of long products have registered a general increase in all markets primarily because of the boom in the construction sector.
In order to ensure adequate availability of steel at affordable prices for the small scale sector, two meetings were held in April 2004 – one with the Small Scale Industries Corporations (SSIC’s) and another of the Coordination Committee so as to address the problems of the small scale units and review the schemes for adequate raw material supply to them and through the SSI Corporations. The associations of Small Scale Industries have been encouraged to set up a mechanism for directly entering into long term MOUs with the steel producers so that they can get material at affordable prices. Allocations made to SSICs have been substantially enhanced for the year 2004-05.

Inconvenience faced by the industry
The sponge iron industry in India is facing tremendous problems of which mounting cost of basic inputs, high cost of capital are of prime importance. The demand was in recession in the immediate past years, however, it has recovered now and the industry is enjoying healthy demand for the last few months. But, the industry is afraid of continuing the scenario in future as steel scrap imports – a substitute to sponge iron – is increasing voluminously. High quality iron ore is required but only inferior quality iron ores are supplied to them. Premium grade iron ore which has more than 60 per cent of iron content is preferably exported. Imported low ash content (below 12 per cent) non-coking coal is required to be blended with the high ash content. High prices of natural gas in India as compared to the global market is increasing the cost of production of the gas-based producers.

Power generation
Power generation through waste gases at very low cost is one of the biggest advantages the sponge iron industry is enjoying with. This provides power at the low cost per unit which helps the unit to generate more profit than the sale of sponge iron in real sense. That means electrical power could become prime product with sponge iron. And as tariff for power supply is high, these units can sell the power (by paying very nominal wheeling charges to the respective state governments) to nearby small industries at lower rates and can earn revenue from power.
Although globally iron ore is the major feedstock for blast furnace (BF), - steel making through which is an early process currently producing 57 per cent of the world crude steel. The production through the EAF route, has gone up significantly from about 26.6 per cent in 1998 of the global production to about 36 per cent in 2002. There increased trend in the price of steel scrap required for the EAF steelmaking and its short supply led to the search for on alternative feedstock. The steel technologists found sponge iron as a suitable charging material for the EAFs.

On the global front
The steel industry globally is using about 25 per cent of the alternative iron sources like DRI/HBI, merchant pig iron and hot metal to produce high quality steels in the EAFs. DRI is now recognised as a high purity, top quality charge material throughout the world. In comparison with scarp, the use of DRI/HBI is now known to offer many benefits like consistency in composition, low trace elements due to its porous nature and environment – friendliness.
The global supply of sponge iron is expected to reach 55 MTPA in 2010 as against about 40 MTPA at present, liquid hotmetal and solid pig iron would also be used to a large extent. At the same time, the quality scrap is not likely to show any major improvement in future. The developing countries lead the roost with Mexico, Venezuela, India and Iran together produce over 50 per cent of the total production of DRI in the world. Its meaningful to note that the global production of DRI which was 7.8 MT in 1981, went up to 39.33 MTPA in 2001 recording an average annual growth of 20 per cent during the period. India was the third largest producer of DRI in the world in 1998, went one step ahead to grab the second position in 1999, slipped to third position again in 2000 but left all countries behind to reach the top in 2001.

Raw materials
The major raw materials required for production of sponge iron are oxides of iron in the form of lump iron, pellets, non-coking coal and fluxes (limestone and dolomite). Some precaution is necessary in selecting the iron oxide especially the phosphorus content and its reliability for easy reduction. Use of high purity of lump ore, pellets with low phosphorus at an economic price helps in the cost effective production of sponge iron. DRI production by secondary producers remained at 6287 thousand tons during April 2002-03. As far as chemical composition for sponge iron goes, for maximum yield, the metallic iron content should be at the highest possible level with sulpher and phosphorus as low as possible. The gauge content should preferably be within 2 per cent, and silica less than 3 per cent to ensure lower slag volume, less power consumption and for achieving higher productivity.

Sponge iron and steelmaking industries go hand in hand. Hence, its quite difficult to assume the future of sponge iron industry without steel and vice a versa. Therefore, the future of DRI depends on steel demand coupled with the availability of its substitute i.e. steel scrap. Producing this material saves a lot of revenue loss in the form of high foreign currency demand and long gestation period to obtain the material to the company and the country subsequently. Hence, these producers are lobbying with the government with regards to protection from liabilities and overheads.

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