Sponge iron is the product created when iron ore is reduced to metallic iron, usually with carbon (coal, etc.), at temperatures below the melting point of iron. This results in a spongy mass, sometimes called a bloom, consisting of a mix of incandescent wrought iron and slag. Sponge iron is not useful in itself , but must be processed to create usable steel. Today, sponge iron is created by reducing iron ore without melting it. This makes for an energy-efficient feedstock for specialty steel manufacturers which used to rely upon scrap metal. The sponge iron is a substitute for scrap in the electric arc furnace, which can be easily manufactured from indigenously available raw materials at very competitive price. It is the iron ore reduced in solid state by a direct reduction process using natural gas or non-cooking coal as reluctant.

The sponge iron is also known as Direct Reduced Iron, Hot Briquettes Iron or metalized Iron. With the domestic steel industry picking up during the past year and prices moving up in leaps and bounds, India has emerged as the world’s largest producer of sponge iron (or direct reduced{iron), accounting for around 16 per cent of the global output. Sponge iron is used to make steel by all Indian steel producers and is a substitute for steel melting scrap. Healthy demand growth in steel sector is also pushing sponge iron demand. Apart from declining availability of steel melting scrap, sponge iron demand has also gone up considerably and is likely to continue. About 45% of the domestic output is through Electric Furnace route. However, going forward this is slated to increase. With steel production is likely to grow at 6%-7%, the demand for sponge iron is likely to grow at more than 10 per cent till the year 2027 and then expected to stabilize at 8 per cent after that.