NMDC defers plan to invest in Sponge Iron India

National Minerals and Metals Development Corp, India's largest iron ore producer, is deferring a Rs1,200 crore investment in the struggling Sponge Iron India Ltd because of a steep drop in global sponge iron prices.

"There has been a drastic fall in sponge iron prices and as a prudent investor, NMDC will get the financial viability study re-done before physical investment," NMDC and SIIL chairman Rana Som told reporters in Hyderabad.

But sponge iron prices globally have fallen more than 50 percent in the last 10 months and are hovering around Rs 12,000 a tonne.

 NMDC, which proposes to 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.

Som said the investment will now depend on the financial viability study based on the current market scenario and projected price range of sponge iron. He said the report was expected by December-January when the merger of SIIL into NMDC is likely to be completed. The merger was earlier scheduled by October. It has been delayed due to various regulatory bottlenecks.

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 per cent of its production capacity of 60,000 tonnes a year at its plant in Andhra Pradesh's Khammam district.