Sponge iron prices may inch up in few months: Monnet Ispat

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Sponge iron prices are up 5% in two days. In an interview with CNBC-TV18, Ajay Bhat, Chief Financial Officer of Monnet Ispat , spoke about the factors behind it.

Here is a verbatim transcript of an exclusive interview with Ajay Bhat on CNBC-TV18. Also watch the accompanying video.

Q: Are there any concerns about raw material availability?

A: No. As far as our company is concerned, there are no concerns. We have our own coal in any case. We are 100% captive on that and we have a portion of iron ore that we get from some of our mines and rest of the iron ore is available from the market. We have not had any concerns on the raw material availability.

Q: What could be the reason for the 5% rise sponge iron price? How do you forecast the price in the next quarter?

A: This price increase in sponge iron was always anticipated because the prices were slightly down in the last few months due to the impact of the monsoons. This appreciation was anticipated. We would not be surprised to get further strengthening of prices in the next few months. The reason is that in the last six-seven months we have not seen capex cycle really picking up in the country which is now happening.

It is going have some impact on the steel prices. If we track down the prices of particularly construction steel in the last eight-nine months, they have not been doing very well. They have not been bad either but they have not been doing very well. The demand in the domestic market was not strong enough for us to put very strong prices. This is now getting reflected and we could see some strengthening in future as well.

Q: Are better days ahead in terms of the margins that you all will be working at because you are saying that the short-term supply of iron ore should not be a concern because you are well capitalized but in the past iron ore prices are inching up over the past three-six months? We are heading for negotiation season demand has not been great but a lot of steel producers are telling us that both the long and the flat side demand is picking up - prices are expected to inch up. And in terms of exact sponge iron prices - if you could give us the quantum of increase you are expecting over the next three-four months and the margins that you would work at with iron ore prices inching up as well?

A: As far as sponge iron prices are concerned, they were hovering at about Rs 12,500-13,000 for the last couple of months. They are now around Rs 14,000 and can inch upto 15,000 as well. The price increase in the sponge iron was expected and further increased cannot be ruled out. Similarly, in the iron ore prices they were at about Rs 3,000 or 3,200 they have just inched by to Rs 3,500-3,600. So we are not seeing any discorrelation in the price of the iron ore vis-à-vis the sponge iron.

We would see a correlation happening because unless there is a very strong demand in the construction steel in India or maybe globally you wouldn't see a much price section on the iron ore front. Iron ore will continue to be in this range. It has been right through 2009 and unless the demand really picks up in the economies, capex and in the steel prices then it could reflect in the iron ore prices.