Rising demand for sponge iron may put upward pressure on the price of the steel-making raw material, reports indicate.

Demand for sponge iron has increased after steel companies started using this in a greater quantity in place of steel scrap.

Steel firms import steel scrap to use it along with sponge iron for making steel. But with the depreciation of rupee, the imported cost of steel scrap has risen sharply, prompting companies to prefer sponge iron.

This may raise the price of sponge iron to Rs 18,000 per tonne at Rourkela in September and the demand will last till December, industry sources feel. Price of sponge iron rose 3 per cent to Rs 17,500 a tonne at trading hub Rourkela over the past two weeks.

In international markets, steel scrap rates are hovering around $340 a tonne at European ports at present, up from $333 a tonne in July.

Steel firms use sponge iron or directly reduced iron (DRI) as a raw material in electric arc furnaces and induction furnaces to produce hot steel with some amount of steel scrap.

While the arc furnaces usually require sponge iron and steel scrap in 60:40 ratio, steel firms change this proportion according to the prices of these two commodities.