Manufacturers of sponge iron (coal based DRI production) and the associated induction furnace operators that melt the product have had to halt production in the southern states of Karnataka, parts of Tamil Nadu and Andhra Pradesh, following a severe shortage of iron ore lump and its high price at e-auctions.

This has had had a cascading effect on the entire value chain not only resulting in the closure of the sponge iron units, but also producing a shortage of raw materials for many induction furnaces and electric arc furnaces that manufacture rebars and billet. There are many such units in Tamil Nadu and Andhra Pradesh which depend on sponge iron from units in Karnataka.

Normally, sponge iron kilns require hard iron ore lump or pellets as the chief raw material. Since mining was banned in Karnataka from earlier this year, these DRI kilns have no access to lump ore. Whatever lump ore was sold in e-auctions, these were consumed by large steel mills and these units did not pay such a high price to buy them. Also, the DRI kilns cannot use soft lump ore or iron ore fines and, hence, have been starved of their raw source.