Though the industrial application of sponge iron started early in the 1950s, it could not fulfil industry expectations at that time, being used as a supplementary material for feeding blast furnaces especially in gas based Sponge Iron plants. Blast Furnace capacities increased from 0.7 million tons per annum in 1960s to over 4 million tons per annum. Today, the largest gas based sponge iron module available is approx. 2.7 million tonnes per annum.
However, the environmental requirements and the capital cost required to set up new integrated steel plants have their own draw backs. In light of this, coal based sponge iron technology now indicates a new direction, particularly for Indian steel making conditions.
A coal based sponge iron plant was first built in 1980 at a place called Paloncha in Andhra Pradesh which had a capacity of just 0.03 million tons per annum. In a span of 20 years, the industry has grown rapidly and the present estimated capacity is nearly 4.5 million tons.
The industry has become well developed and is presently operating in eight different States of India. Numerous key developments that have taken place have made the coal based sponge iron technology more successful.
Some of the key innovations are discussed below:
Capital requirement: In the Initial years, nearly 80% of the equipments required were imported. Presently, large scale indigenization has taken place and for a 1, 20,000 TPA module 100% indigenized equipment is available and for a 1, 50,000 TPA module only the kiln tyres and support rollers have to be imported. This has reduced the capital expenditure related costs considerably.
The sponge iron plants can also be set up quite rapidly and it now takes just 18 months to go on stream for a major plant. It also has a very low gestation period.
Raw materials: The main raw materials required are suitable iron ore, coal, dolomite and power and the details of the same are summarized hereunder:
- Iron ore: The iron ore used is hematite with an Iron (Fe) content of 62-66% having low decrepitating characteristics. In the initial days, the iron ore size was kept at 5-20 mm and used to wash away in a scrubber, but presently it has become a standard norm to use 5-18 mm ore as feed for a large kiln without scrubbing and/or washing.
This has resulted in reducing the cost of iron ore fed to the kiln. The consumption of iron ore has also decreased from about 1600 KG per ton of sponge iron to 1500 KG levels mainly due to a better understanding of the process, improvements of the equipment and increased levels of automation.
- Coal: Non-coking coal is being used having certain important parameters considered necessary for the direct reduction of iron ore viz. reactivity, ash softening temperature, caking and swelling indices and sulphur content, etc. In India the availability of these coals is very low due to Government monopoly even though abundant resources of non-coking coal are available.
Initially, only 'B' grade coals were being consumed whose availability has now become scarce. The industry has successfully adopted measures to utilize 'C' and 'D' grade coals through better process control, installing raw material heating systems, shale picking belts and coal washing plants. With these measures the *coal cost has been reduced by nearly 20-30% when compared with the usage of 'B' grade coal.
- Dolomite: Dolomite is mainly used as a de-sulphurising agent to prevent the pickup of sulphur by the sponge iron from the sulphur released by the burning of coal inside the furnace. The initial specifications for dolomite were 1-4 mm, later it was found that 4-8 mm dolomite was far more suitable by which the consumption can be reduced by 50%. This was mainly due to the fact that lot of dolomite fines were being lost to waste gases and with 4-8 mm fraction this loss was minimized.
- Power: The initial plants were high power consuming units mainly due to the wet waste gas cleaning, relay operated drives with low levels of automation, etc. The power consumption levels used to be 110-130 units per ton of sponge iron, with the advent of a dry gas cleaning system (electro-static precipitator), programmable logic operated drives and computers replacing the giant panels, the power consumption has been curtailed to 80-90 units per ton of sponge iron.
Yield: The yield levels have increased considerably. Thanks mainly to the secondary steel sector and induction furnaces for using sponge iron fines. This fraction mainly -1mm initially used to be contaminated with fine non-magnetic dust particles and was presumed not fit for use, but with the development of powerful magnetic separators even this fraction has become usable. In fact, in induction furnaces, sponge iron fines are occasionally preferred over lumps due to their higher metallization. Simpler layouts have also helped in minimizing material handling losses.
Campaign Days/Capacity Utilisation: In coal based sponge iron plants, campaign days are defined as the continuous operation of the kiln between two shutdowns of the kiln. Kiln shutdowns require a complete removal of materials from the kiln and cooling of the kiln for maintenance and accretion breaking.
After completion of the shutdown activities, the kiln is initially lighted up with oil, after which coal feeding is started only when desired temperatures have been reached. Then Iron ore feeding is begun. The period from ore feed stop to the restart of ore feed is normally taken as the shutdown period.
During the initial years, when understanding of the process and characteristics of the available raw materials was low, the operating campaign days used to be generally less than 100 days per campaign. Over the years, this has increased more than 175 days in well established plants.
As the campaign days increase in a given financial year, it automatically increases the capacity utilisation of the plant. The capacity utilisation levels which used to be at 85-90% have now consistently crossed 100% in well established plants. (Source: www.steelworld.com, Research Papers)
Sponge Iron Industry in India
India is the largest producer of sponge iron in the world with total production in the last year, i.e. 2009 being 20.96 million tons. This implies almost 30% growth in production from previous year, i.e. 2007, where production was 16.27 million tons.
The major factors for the growth of the Sponge Iron Industry has been the availability of iron ore and non-coking coal - inputs used in its manufacture and the demand for steel in the country. (Source: Ministry of Steel, Annual Report 2009-2010).
Sponge iron, also called Direct-Reduced Iron (DRI), is produced from direct reduction of iron ore (in the form of lumps, pellets or fines) by reducing gas produced from natural gas or coal. The reducing gas is a mixture majority of Hydrogen (H2) and Carbon Monoxide (CO) which acts as reducing agent. This process of directly reducing the iron ore in solid form by reducing gases is called direct reduction.
Sponge iron is used in the manufacture of steel. Its significance has increased in recent times due to capital intensive nature of other steel - making methods. Not only is the cost of setting up steel plant with blast furnace very high, these plants have high power consumption.
Even in sponge iron route, it is more economical to put up coal-based sponge iron units and not gas-based units. India has an estimated of 200 sponge - iron units, of which more than 100 are coal-based units.
Sponge Iron Production over recent periods shows the difference between coal - based & gas - based units.
Indian Sponge Iron Production 4 Quarters 2009-2010 (Tons)
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Total
(Apr - Jun) (Jul - Sep) (Oct - Dec) (Jan-Mar) (Apr - Mar)
Gas: 1590753 1454317 1554751 1572392 6172213 based
Coal: 4161349 4097387 4203572 4359051 16821359 based
Total:5752102 5551704 5758323 5931443 22993572
(Source: Sponge Iron Manufacturers Association, FY 2009-2010)
As the financial crisis hit the global economy, the Direct Reduction Industry was hit as hard as other sectors. Nonetheless, due to the fact that the downturn only occurred in the final months of the year and in that, production earlier in the year was at record levels, the overall global production of DRI in 2008 slightly exceeded the previous maximum, by about 2%.
Even here India led all nations, making 21.2 million tons. The next five in order were Iran at 7.5 million tons, Venezuela at 6.9 million tons, Mexico at 6.0 million tons, Saudi Arabia at 5.0 million tons and Russia at 4.6 million tons. (Source: Ministry of Steel, Annual Report 2009-2010; World Steel Association, Statistical Archives)
Within wide-spread fear of capacity reduction with the closure of many unviable small units the industry maintained its growth till October, 2008. Though the slow down prospect cannot be defied, the growth of the industry is expected to remain robust in the coming future.
Price Scenario in India
Though the Sponge Iron Industry managed to keep shore in the turbulence of the financial crisis, its price was severely hit. The main reason for Sponge industry to remain stable even in falling prices was the low availability of indigenous steel & ferrous scrap worldwide.
In the search of low cost alternative raw material, the sponge iron came out strong as the beneficial alternative, for which technical complicacy was negligible and thus within a short time took over the majority share of metallic pool resources for large scale usage in producing steel in small to medium scale producing through Induction or Arc furnace route.
The demand for steel in the last decade and the low capital intensity of sponge iron industry fuelled the scorching pace of growth for the industry. India has a major presence in the Sponge Iron production as compared to Scrap & Indian producers cashed on this advantage. (Source: Sponge Iron Manufacturers Association)
As Global economy prepares for a revival, 2009 saw prices of coal based sponge iron in May 2009 increase across Indian markets. Prices were highest in the Delhi market @ Rs.17, 000 per ton and lowest in the Chennai market @ Rs.14, 560 per ton.
Indian Sponge Iron Industry in a Global Perspective
India, in the area of Sponge Iron, needs an industry-wise consolidation. Consolidation of the industry will help the industry in the long run. Steel manufacturers are the major consumers of sponge iron, with a growing significance of the secondary steel manufacturers.
The primary steel manufacturers produce about 30 million ton of steel per annum while the secondary steel producers in all across the country also manufacture equal quantity of steel based products.
With the growth in steel industry and more growth expected in the secondary sector faster as those are less capital intensive and with lower level of technical intricacies. Last few years India registered higher demand growth compared to the capacity growth and with the overall growth of Indian economy the growth of steel industry expected to remain unabated.
Demand of sponge iron is synonymous with the secondary steel industry subjected to other factors remaining same and hence industry should logically be quite optimistic.
India has maintained highest production share in the world DRI industry even in times of recent turmoil.
Comparison of Sponge Iron Production (In '000 tons)
Dec'08 Dec'09 Change Jan - Dec 08 Jan - Dec 09 Change
World Production 3803 4902 28.90% 56767 53562 -5.64%
India Production 1700 1815 6.76% 20150 21035 4.39%
India's % Share 44.70% 37.03% 35.50% 39.27%
(Source: World Steel Association, Statistical Archives)
Future of Indian Sponge Industry
The future for the Indian Sponge Industry is expected to be good and experts predict Sponge Iron the next biggest raw material for Steel. National Steel Policy issued by the Ministry of Steel forecasts DRI requirement in 2010-11 to about 18 million tons and expects the requirement to reach 30 million tons by 2020.
The prospects also look good as the main raw material for Sponge Iron, Iron Ore, is currently not facing any shortages in reserves. However, experts believe that to sustain this growth, Indian Sponge Industry should concentrate on installing and running pollution control equipment meeting the ecological norms.
Evolution of the Power Sector
After Independence, the country was faced with capacity restraint. India adopted a socialist structure for economic growth and all the major industries were controlled by public sector enterprises. By 1970's India had nationalized most of its energy assets, due to its commitment to social goals. By the late 1980's the Indian economy felt the strain of the socialist agenda followed since independence. Faced with a serious deterioration in public finance and balance of payment crisis, the Union government as part of its policy of economic liberalization allowed greater investment by private sector in the power industry.
Understanding the critical part played by the power industry which was plagued by continued power shortages, poor operational performance and precarious financial situation of State Electricity Boards (SEBs), the Union Government passed several laws and restructured the Power Industry to gear it up to meet the challenges posed to the Indian economy post Liberalization.
Power sector reform and introduction of a regulatory framework was proposed as one possible solution to improve the SEBs' finances. In 1995, these measures were further strengthened by a Mega Power Policy, whereby plants above 1000MW capacity would receive additional incentives in the form of a 10- year tax holiday, exemption of customs duty for imports, reduced hassles for clearances, etc. This also provided for the setting up of Power Trading Corporation (PTC) to act as an intermediary between the private developers of mega projects and the SEBs. Though independent power producers (IPPs) evinced interest for adding generation capacity for about 95,000MW, only 6500MW was added during the eighth and ninth five-year plans (1992-2002).
Electricity Bill 2001
Learning from the experience gained through various reform initiatives, the Indian government passed the Electricity Bill 2001.The Bill seeks to
- Consolidate and rationalize existing laws.
- To address the issues of developing industry including regulation, power trading, non discriminatory open access, choice of dispensing with vertically integrated state enterprises and encouraging private enterprise.
Energy Conservation Act 2001
The Act was enacted by the Indian government to facilitate stringent steps to ensure the efficient use of energy and its conservation. A Bureau of Energy Efficiency was set up to monitor and regulate the Power Industry according to the provisions of the act.
Indian power sector or the power industry in India comprises of the various governmental bodies looking after the power systems in India, power generation industry and power technologies in India.
Indian power sector comes under the Ministry of Power. In 1992, the Ministry of Power started working independently with work areas covering planning and strategizing the Indian power projects and policies. Besides, the MoP also undertakes power management and implementation of the various power projects undertaken, formulation and amendments of the power laws in India, management of the power supply in India, monitoring of the power plants, power companies in India, power generation in India. The Ministry of Power (MoP) is coordinated by Central Electricity Authority (CEA) in all technical and economic aspects. Along with the CEA, other subsidiary organizations of the Mop are:
- National Thermal Power Corporation (NTPC)
- National Hydro Electric Corporation (NHEC)
- Power Finance Corporation of India (PFCI)
- Nuclear Power Corporation of India Limited
- North Eastern Electric Power Corporation (NEEPC)
- Rural Electrification Corporation (REC)
- Damodar Valley Corporation (DVC)
- Bhakra Beas Management Board (BBMB)
- Tehri Hydro Development Corporation (THDC)
- Satluj Jal Vidyut Nigam (SJVN)
- Power Grid Corporation of India Ltd (Power Grid India)
- Power Trading Corporation (PTC)
- Bureau of Energy Efficiency (BEE)
Indian Power Industry
The Indian economy is growing at one of the fastest rates in the world. This leads to a high demand for additional power. With this growing demand, there is ample scope for power sector in India to grow to new heights. India's demand for energy has grown at an average of 3.6% per annum over the past 30 years.
However, the main problem in India is that power consumption rate is growing at faster rate than the power generation capacity. In the five years to March 2007, India added 21,080 megawatts of electricity- generating capacity, compared with a government target of 41,110 megawatts for that period.
The need of the hour for India is greater private investments in the electricity sector, without which meeting power requirement targets would be difficult. With the recently concluded nuclear pact between USA and India, on the heels of a civilian nuclear deal between India and France, more foreign investment in India's energy sector is expected.
Power generation capabilities
Coal based sponge iron technology has gained higher economic viability by its ability to generate a considerable quantity of electricity through use of hot waste gases and kiln waste (char) materials.
In coal based sponge iron technology, the furnace (rotary kiln) fulfils various functions. It is used as a conveying, mixing and charring unit, as a heat exchanger and as a reactor for coal gasification and iron ore reduction. The advantage of these applications from single equipment in the rotary kiln, is partly offset since basically, the kiln is considered to be a poor heat exchanger.
This is due to the reduced contact of gas and solids when compared with a shaft furnace resulting in high waste gas energy losses. In coal based sponge iron kilns, depending on the quality of reductant (coal) used, about 60% of the total heat input is utilized in the reduction process.
About 40% of the heat input is discharged with the kiln waste gases and the kiln materials in the form of sensible or chemical heat. The hot waste gas and char produced thus contain considerable energy saving potentials. After deducting the internal power consumption, approximately 400-500 Kwh of electric energy (depending on the reduction agent used) can be produced per ton of Fe by utilizing the heat content of the kiln waste gases.
This energy can be used for reducing the total external power requirement of about 900 Kwh/t of billets for melting sponge iron in electric arc furnaces or in induction furnaces under Indian conditions.
The cost of captive power generation through kiln waste gases in India will be similar to hydel power generation costs. The cost difference between external energy and internal energy has a direct influence on the price of steel produced.
By burning coal fines, coal washery rejects and the non-magnetic kiln discharge (char) in a fluidized bed boiler, steam can be generated which can in turn be used for power generation. At present in India such boilers are in successful operation at Jindal Steel & Power Limited (Chhattisgarh), Prakash Industries Limited (Chhattisgarh), Bihar Sponge Iron Limited (Jharkhand) and Sunflag Iron & Steel Company Limited
(Maharashtra). Few more coal based sponge iron plants are contemplating the setting up of similar boilers, including Tata Sponge Iron Limited (Orissa).
Today more and more units are based on Direct Reduction/Electric Arc Furnace route and many major steel producers in the country have taken to this route of steel making to add steel capacities. For existing integrated steel plants based on the conventional Blast Furnace route, building captive Direct Reduction units would be an easier and viable option to increase their capacities without building additional and expensive coke making facilities. (Source: Steel World Association)
In India, Power Generation is divided under divisional heads, namely, State Department, Central Department and the Private Sector. Total power generation installed capacity in terms of different divisions is shown in the table below:
Installed Power Generation Capacity (As on 30-03-2010) (Division-Wise)
Division MW % age Capacity
State Department 79391.85 49.8
Central Department 50992.63 32.0
Private Sector 29014.1 18.2
Total 159398.49 100
(Source: Central Electricity Authority Report, Jan, 2010)
The Central Electricity Authority (CEA) periodically estimates the power requirement in the country. With the growing population, Industries and thus growing demand for electricity, the CEA has set a target for capacity addition to be achieved in the 11th Economic Plan.
Capacity Addition Target 11th Plan (MW)
Type/Sector Central State Private Total
Thermal 24840 23301 11552 59693
Hydro 8654 3482 3491 15627
Nuclear 3380 0 0 3380
Total 36874 26783 15043 78700
(Source: Central Electricity Authority Report, Jan 2010)
Such Targets were set up in the past too by CEA and the table below shows the targets set & simultaneously achieved during the period of Apr-Mar 2009 & Apr-Mar 2010.
Capacity Addition Achieved in 2009 & 2010 (MW)
Deviation Target Achieved
Thermal 9304.2 2484.7 -6819.5
Hydro 1097.0 969.0 -128.0
Nuclear 660.0 0.0 -660.0
RES 0.0 0.0 0.0
Total 11061.2 3453.7 -7607.5
Deviation Target Achieved
Thermal 13002.0 9106.0 -3896.0
Hydro 845.0 39.0 -806.0
Nuclear 660.0 440.0 -220.0
RES 0.0 0.0 0.0
Total 14507.0 9585.0 -4922.0
(Source: Central Electricity Authority Report, 2009 & 2010)
As seen from the table, target realization has been much enhanced in the current year as compared to 2008. While the installed power generation capacity of India in December 2009 stood at 156,092 MW, the per capita power consumption in FY 2007-08 stood at approximately 717 kW. (Source: Central Electricity Authority, 17th Electric Power Survey of India)
About 65% of the electricity consumed in India is generated by thermal power plants, 24% by hydro- electric power plants and 3% by nuclear power plants. More than 50% of India's commercial energy demand is met through the country's vast coal reserves. India has invested heavily in recent years on renewable sources of energy such as wind energy. As of 2008, India's installed wind power generation capacity stood at 9,655 MW. Additionally, India has committed massive amount of funds for the construction of various nuclear reactors which would generate at least 30,000 MW. In July 2009, India unveiled a $19 billion plan to produce 20,000 MW of solar power by 2020. These targets and investments are required as ministry of Power has estimated the demand for electricity to reach 400,000 by 2020 and 950,000 MW by 2030.
Transmission & Distribution (T&D)
Transmission of electricity is defined as bulk transfer of power over a long distance at high voltage, generally of 132kV and above. The entire country has been divided into five regions for transmission systems, namely, Northern Region, North Eastern Region, Eastern Region, Southern Region and Western Region. The Interconnected transmission system within each region is also called the regional grid.
The transmission system planning in the country, in the past, had traditionally been linked to generation projects as part of the evacuation system. Ability of the power system to safely withstand a contingency without generation rescheduling or load-shedding was the main criteria for planning the transmission system.
However, due to various reasons such as spatial development of load in the network, non- commissioning of load center generating units originally planned and deficit in reactive compensation, certain pockets in the power system could not safely operate even under normal conditions.
This had necessitated backing down of generation and operating at a lower load generation balance in the past. Transmission planning has therefore moved away from the earlier generation evacuation system planning to integrate system planning.
Total Power Supply Scenario as of March, 2010 as per different transmission sectors is given in the table below: Power supply Position 2009-10 (Apr 2009 - Mar 2010)
Region: Energy Requirement (MU); Energy Availability (MU); Deficit %
Northern: 253,803; 224,447; -11.6%
Western: 258,551; 223,153; -13.7%
Southern:220.557; 206,525; -6.4%
Eastern: 88,040; 84,054; -4.5%
North Eastern: 9,349; 8,315; -11.1%
All India: 830,300; 746,493; -10.1%
(Source: Central Electricity Authority Report, Mar 2010)
While the predominant technology for electricity transmission and distribution has been Alternating Current (AC) technology, High Voltage Direct Current (HVDC) technology has also been used for interconnection of all regional grids across the country and for bulk transmission of power over long distances.
Certain provisions in the Electricity Act 2003 such as open access to the transmission and distribution network, recognition of power trading as a distinct activity, the liberal definition of a captive generating plant and provision for supply in rural areas are expected to introduce and encourage competition in the electricity sector. It is expected that all the above measures on the generation, transmission and distribution front would result in formation of a robust electricity grid in the country.
Apart from an extensive transmission system network at 500kV HVDC, 400kV, 220kV, 132kV and 66kV which have been developed to transmit the power from generating station to the grid substations, a vast network of sub transmission in distribution system has also come up for utilisation of the power by the ultimate consumers.
However, due to lack of adequate investment on T&D works, the T&D losses have been consistently on higher side, and reached to the level of 26.91% in the year 2007-08.The reduction of these losses was essential to bring economic viability to the State Utilities.
As the T&D loss was not able to capture all the losses in the network, concept of Aggregate Technical and Commercial (AT&C) loss was introduced. AT&C loss captures technical as well as commercial losses in the network and is a true indicator of total losses in the system.
High technical losses in the system are primarily due to inadequate investments over the years for system improvement works, which has resulted in unplanned extensions of the distribution lines, overloading of the system elements like transformers and conductors, and lack of adequate reactive power support.
The commercial losses are mainly due to low metering efficiency, theft & pilferages. This may be eliminated by improving metering efficiency, proper energy accounting & auditing and improved billing & collection efficiency. Fixing of accountability of the personnel / feeder managers may help considerably in reduction of AT&C loss.
With the initiative of the Government of India and of the States, the Accelerated Power Development & Reform Program (APDRP) was launched in 2001, for the strengthening of Sub - Transmission and Distribution network and reduction in AT&C losses.
The main objective of the program was to bring Aggregate Technical & Commercial (AT&C) losses below 15% in five years in urban and in high-density areas. The program, along with other initiatives of the Government of India and of the States, has led to reduction in the overall AT&C loss from 38.86% in 2001-02 to 32.07% in 2006-07.
The APDRP program is being restructured by the Government of India, so that the desired level of 15% AT&C loss could be achieved by the end of 11th plan. (Source: Central Electricity Authority Report, 2009)
Indian Power Sector in a Global Perspective
Indian Power Sector though growing at a steady pace is far behind in technology, production capacity and consumption from the developed nations in the world. With the high population and the increasing industrial scenario, India is striving hard to keep up with the increasing demand for power/electricity.
Consumption of Electricity in India over the past years has increased manifolds. India ranked seventh in world electricity consumption in the year 2007.
Electricity Consumption by Country
Rank Country Consumption (in kWh)
# 1 USA 3,892,000,000,000
# 2 China 3,271,000,000,000
# 3 Japan 1,080,000,000,000
# 4 Russia 1,003,000,000,000
# 5 Germany 549,100,000,000
# 6 Canada 530,000,000,000
# 7 India 517,200,000,000
# 8 France 480,000,000,000
# 9 Brazil 402,200,000,000
# 10 South Korea 385,100,000,000
India has recently picked up pace towards power generation from Solar & Renewable Energy Sources (RES). India has a long way to go before high dependence on RES & Solar energy as today more than 50% power is generated using Thermal Energy like Coal, Gas & Diesel. Global power generation has already shifted to depend more on Solar & RES. The US expects to be able to produce 80% of its power from RES by 2050.
Source:Vaswani Industries Ltd. - 29/04/2011
NOTE: Unless otherwise indicated, the information in this section is derived from a combination of various official and unofficial publicly available materials and sources of information. It has not been independently verified by the Company; the Book Running Lead Manager and their respective legal or financial advisors, and no representations is made as to the accuracy of this information, which may be inconsistent with information available or compiled from other sources. Industry sources and publications generally state that the information contained therein has been obtained from sources generally believed to be reliable, but their accuracy, completeness, underlying assumptions and reliability cannot be assured. Accordingly, investment decisions should not be based on such information.