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The Indian Ferroalloy Industry At Cross Roads

Invited Paper for Metals & Minerals Review Ferroalloy Special January 2013 issue

The Indian Ferroalloy Industry At Cross Roads


Prabhash Gokarn, Tata Steel

1.0 INTRODUCTION TO THE INDIAN FERRO ALLOY INDUSTRY


The Indian Ferroalloy Industry; a part of the Core Sector under Ministry of Steel; is
engaged
in
supplying
crucial
intermediates to the Steel Industry;
namely ferroalloys. The Industry has
completed five decades of its existence.
Bulk Ferroalloys (viz. Ferro Manganese,
Ferro Silico Manganese, Ferro Silicon,
Ferro Chrome, etc., manufactured
through Submerged Arc furnaces), and
Noble
Ferroalloys
(viz.
Ferro
Molybdenum, Ferro Vanadium, Ferro
Tungsten, Ferro Silico Magnesium,
Ferro Titanium, Ferro Boron, etc.
manufactured through the Alumino-Thermic process), are used in the production of
steel (as deoxidants, for refining and for alloying).
Depending upon the process of steel making and the type of steel being made, the
requirement of different ferroalloys varies widely. The principal functions of alloying
steel is for increasing its resistance to corrosion and oxidation, improving hardenability,
tensile strength, high temperature properties (such as creep strength), wear and
abrasion resistance, etc. Since
noble ferroalloys constitute a
very small proportion of the total,
this paper is written with a focus
on bulk ferroalloys.
The furnace capacity in the
Industry was around 600 MVA
prior to liberalization. Capacity
addition was over 700 MVA
before the 11th Five Year Plan;
another 1600 MVA of capacity
has been added during the 11th
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Five Year Plan. As a result, the furnace capacity has crossed 2,900 MVA and by
tonnage it has crossed 5 million tonnes per annum (Figure 1). Thus, ferroalloy
manufacturing capacity has increased far ahead of the growth in ferroalloy requirement
by the domestic steel industry, and has been export driven. About 30% of the capacity
is idle due to a combination of poor planning, poor economics and local problems
(labour, electricity, management issues etc.).

1.1 New Capacities Coming Up


Existing units are expanding and new ferroalloy units coming up (Haldia-West Bengal,
Visakhapatnam-Andhra Pradesh, parts of Chhattisgarh, Orissa and Jharkhand). It is
expected that another 800 MVA to 1000 MVA capacity will be installed and will be in
commercial production in the next two to three years. These units are also setting new
capacities for electricity generation and it is expected that about 1000 MVA of CPP
capacity will be added in next two years.
2.0 GLOBAL TRENDS IMPACTING THE INDIAN FERRO ALLOY INDUSTRY
2.1 Global Shift in Stainless Steel and Carbon Steel Production
2.1.1 Stainless Steel production has seen
shift in production from EU and Japan to
China. There has been a steep reduction in
stainless steel production in EU (due to the
economic crisis) and in Japan(partly due to
effects of the Tsunami and due to global
recession). This reduction in stainless steel
production in the developed economies is
likely to continue. (Figure 2)

On the other hand stainless steel production


in China and India has seen significant
growth: with over 45% of global stainless
steel likely to be produced in China by 2015
as against 35% today; India is also likely to
see a growth in stainless steel production at
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~ 10% in the next 5 years.
2.1.2 Carbon Steel production in China has grown at a CAGR of 12% and in India at
8% since early 2000 and this growth is not
likely to taper off anytime soon. On the other
hand the developed economies of Japan,
US, and EU grew in single digits in the same
period and are now declining. (Figure 3).

Thus the demand for ferroalloys too has


become Asia Centric. Given both China and
India are also large producers of ferroalloys
(China & India - FeCr, Mn alloys, additionally,
China FeSi, refined alloys and most noble
ferroalloys), and are large exporters to the
rest of the world; the growing consumption at
home has very significant impact on global
trade. China has imposed export taxes on
ferroalloy exports and has in many cases
become a net importer; India seems to be going the same way.

2.2 Borderless World


2.2.1 Trade Barriers : Globally, trade barriers to imports are decreasing, for example
the decrease on duties on ferro alloy imports has reduced from a peak of 105% in 1993
to 0% in 2008 with duties currently
just 5% (Figure 4)

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2.2.2 Ocean Freight : With
development
of
shipping
infrastructure, ocean freight
no
longer
remains
a
significant cost, a step
towards making geography,
history (Figure 5)

2.3 Reducing Differential in Power Situation in Major Ferroalloy Producing


Countries :
Power is the second most important requirement for bulk ferroalloy production. India
has historically suffered from huge power shortages, inefficient power generation &
transmission and high cost, partly due to cross subsidies and T&D losses (which include
power theft). However, privatization of power generation (both CPPs & IPPs) and power
distribution has brought significant improvement in the Indian power situation in the last
decade.
While India is still at a disadvantage with respect to power cost in South Africa and
Kazakhstan, the gap between China and South Africa on the one hand and India on the
other regarding cost of power and its availability has clearly reduced, making ferroalloy
production in India much more sustainable. The power crisis in South Africa is well
known, while China too has seen acute seasonal shortages of power and rising power
costs.

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3.0 OPPORTUNITIES FOR GROWTH OF THE FERRO ALLOY INDUSTRY IN INDIA
The above factors have
given the Indian Ferro
Alloy Industry immense
and
very
significant
growth opportunities that
have led to a very rapid
growth in ferro alloy
production and exports in
the last decade. (Figure
6).

3.1 Exports from India : China is the worlds largest Manganese Ore producer by
volume and by Manganese content producing 35% of the worlds total production. China
has
traditionally
been
a
large
exporter
of
Manganese Alloys.
Since late 2009,
China has become
a net importer of
SiMn. Ironically, it
was China that in
the past exported
the highest volume
of SiMn. Also, the
steep increase in
the production of
stainless steel and
carbon steel in
China (Figure 7
and Figure 8) means it has become a significant market for ferroalloys, located at
Indias doorstep.

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Chinas withdrawal from supplying bulk ferro alloys and instead importing them on a
large scale has led to a steep increase in Indian exports of ferro alloys. (Figure 9).

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3.2 Domestic Consumption of Ferroalloys : The increase in production of both


carbon and stainless steel in India over the last decade has led to a significant increase
in the domestic consumption
of Ferroalloys in India (Figure
10)

The projected growth of ~8 to


10% of stainless steel and
carbon steel till 2015 augurs
well for the continued growth
of ferro alloy production in
India (Figure 11 and Figure
12).

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4,0 FERROALLOY INDUSTRY IN INDIA - ADVANTAGES
To summarize, the Indian Ferro Alloy industry has many advantages that have so far
augured well and resulted in the spectacular growth of ferro alloy production in India.
These advantages are :
4.1 Ability to immediately scale up :
1. Large Capacity for Ferroalloys
2. Industry currently operating at 60% of rated capacity
3. New capacities coming up - near ports (Vizag, Haldia).
4.2 Location near high growth regions:
4. Freight advantage in markets such as China, Korea and Japan compared
to Ukraine, Kazakhstan and South Africa
5. Short sailing time, freight advantage
4.3 Cost Advantages over China:
6. Domestically sourced LG & MG Mn Ore available for blending with
imported HG Mn Ore.
7. Power, labour and inland freight costs comparable to China.

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4.4 Power availability no longer such a large differentiator:
8. Commissioning of many new power plants including captive ones(CPP)may help reduce power availability issues (faced today by SA, China)

4.5 Backward linkage to Ore:


9. Chrome Ore - Indigenous Chrome ore of high grade quality available to
some players (integrated players like IMFA & Tata Steel, and those based
in Orissa with allocations from OMC)
10. Manganese Ore Low and medium grade Manganese ores abundantly
available but need to be sweetened by import of high grade/high Mn/Fe
Manganese ores.
4.6 Reductants :
11. Coke : India has been almost totally reliant on imports of coke from China
specially for making Ferro Chrome. High coke prices and the 40% export
tax levied on coke exports by the Chinese government have reduced the
cost competitiveness of the ferro alloy industry in India.
Increasing use of alternative reductants including indigenous coke/coal for
ferro alloy making has helped the industry to mitigate the high cost to
some extent. The slowing GDP growth in China and the global recession
have prompted the Chinese government to withdraw this tax, which will
further help the Indian industry to grow.
4.7 Rising domestic consumption of ferroalloys :
The projected ~8% growth in carbon steel and ~10% growth in stainless
steel production augurs well for the ferroalloy industry in India.

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5.0 THEN WHY IS THE INDIAN FERRO ALLOY INDUSTRY AT THE
CROSS ROADS ?
There are however significant developments that can either derail the Indian ferro alloy
growth story or propel it to greater heights. These developments are :
1. Increasing restrictions in the availability of the key raw materials i.e.
Manganese and Chrome Ores
India has been self sufficient in both Manganese and Chrome Ore and till
recently was even a very significant exporter.
However, because of a deficiency in lumpy chrome ore and restrictions in the
free availability of friable chrome ore due to internal policies of the largest
supplier (OMC); imports of chrome ore into India are rising rapidly.

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High Grade Manganese ore being in short supply, imports of Manganese ore into
India have risen dramatically. Manganese ore imports into India are at 1.6 Mn
tonnes for Jan-Aug 2012, a rise of 78% from the same period in 2011.
(Figure 13)

India, like China, is highly dependent on South Africa, Gabon, Australia and
Brazil for sourcing of Manganese ore; these four countries account for ~ 90% of
the imports in 2011.

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What is worrying is Chinas use of its financial muscle to buy mining assets and
securing exclusive tie ups that may make sourcing of ores costlier for India and
hamper the growth of ferro alloy production.
2. Electricity As explained earlier, with the increase in generation of electricity by
public sector utilities, IPPs (Independent Power Projects) and CPPs(Captive
Power Plants); Power Shortages which were the bugbear of power intensive
industries in India such as the ferro alloy industry were mitigated to a large extent
and that allowed for the spectacular growth of this sector(Figure 14).

However, coal being the predominant energy source(Figure 15), there is likely to
be an impending power crisis in this country due to thermal coal availability
issues, coal linkage issues; delay in startup of new coal mines and de-allocation
of coal blocks due to the Coal-gate scam. The rising cost of thermal coal
globally and restrictions imposed in Indonesia on thermal coal asset ownership
and preferential allocation agreements too have been affecting the growth of the
power sector.

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3. Infrastructure Indian industry has had to grapple with inadequate and crumbling
infrastructure stretched and overburdened roadways, railways and ports - that
raises the cost of business. However we are seeing a rapid improvement in
infrastructure :
a. Roads - India plans to spend approximately US$70 Billion by 2013 to
modernize its roads. India has rebuilt over 18,300 kilometers of 4 or 6-lane
highways(including the 4-lane Golden Quadrilateral) inter-connecting
major manufacturing centers and ports. The country is adding ~11
kilometers of new highways daily, and it is likely that we would add about
600 kilometers of modern highway per month till 2014.

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b. Railways - India has one of the world's largest railway networks


comprising 115,000 km of track over 65,000 km carrying 2.8 million tons of
freight daily. Despite this the rail network is stretched and requires urgent
expansion and modernization. Improvements in the form of own your own
wagon, freight rationalization etc have helped.
c. Sea Ports - India has a long 7500km coastline in which there are 13 major
ports and 187 smaller ports, handling about 560 million tonnes of cargo
(which is growing at a rate of 7.7%) annually. While many major ports are
stretched to capacity, specially Paradip, Vishakapatnam and Haldia, which
handle most of the ferroalloy traffic; upcoming ports like Dhamra in the
east; Pipavav, Adani, Dahej, Mundra and Hazira in the west and
Vallaradam in the south would help reduce traffic congestion.

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These improvements in infrastructure will help in the further growth of the
ferroalloy industry. The concern is that these improvements will not happen
rapidly enough.
4. Capital Lack of capital and high rates of interest on loans have in many ways
stymied the growth of ferroalloy units in the past. With many units having fallen
sick due to poor project planning, execution and economics, Indian banks have
become wary of exposure to this sector.
Like in other sectors, there is increasing foreign investor interest in the ferroalloy
sector. This has come in terms of both investments through the stock exchanges
in listed entities (FIIs) and more recently, in form of direct investments through
JVs (FDI). This increased availability of finance for well planned projects could
result in further rapid expansion of the ferroalloy industry. However, talks of
lowering Indias Credit Rating due to the slow pace of reforms, the negative
sentiments caused by issues such as debate over FDI in Retail and the feeling of
Government inaction could badly affect availability of foreign funds.
5. Lack of Technology Infusion and Innovation While Indians have been past
masters of local innovations (jugaad Figure 16), systematic industrial research,
(that allowed the US, Japan, the former Soviet Union, South Korea and some
countries in the EU to leapfrog in industry led GDP growth) is severely lacking in
India.

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As a result India risks being continually overshadowed by China and significant
development of new technologies in ferroalloy making bypassing the Indian
ferroalloy industry (Figure 17).

6. Markets The rapid growth in exports of ferroalloys led to rapid growth in


ferroalloy production in India and today exports form a substantial
proportion(~50%) of the market for ferroalloys (Figure 18). Ferroalloys from India
were exported to EU, Japan and South Korea. The first exports of ferroalloys to
China (hitherto a major ferroalloy exporter) from India occurred in 2004.

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The shift in steel production from the developed nations to China has led to
China becoming the largest consumer (and in some cases producer) of
ferroalloys. Thus, till recently, China has been the dominant destination for
ferroalloys from India. With slowing Chinese steel growth and a healthy growth in
demand for ferroalloys domestically, it is likely that exports, currently almost 50%
of total production, will fall to a level of 30-35%(level attained during 2005-08) in
2013.
The two factors of concern are :
a) With reduction in export duties in China, the re-emergence of China as a large
exporter of ferroalloys may make it difficult for Indian ferroalloy players to
retain market share in a shrinking global market and
b) The domestic demand for ferroalloys, although growing, will not be able to
take up the slack if exports are hit.
This would mean that the bulk ferroalloy industry could see a period of de-growth
in the short term.
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7. Rising Ferro Alloy Imports into India
Although India is a large exporter of Ferroalloys due to the uncertain economic
condition in the developed world, many ferro alloy companies (mainly from the
CIS, Russia and Kazakhstan) which restricted themselves to supplying to
customers in the developed world(US, EU, Japan) and to China have started
making in-roads into India.
This has led to a steep rise in imports of ferroalloys (25% CAGR over last 5
years) and does not augur well for the Indian Ferro Alloy industry (Figure 19).

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6.0 CONCLUSION
Thus while there are many positives for the ferroalloy industry in India, viz. scalability,
location near high growth markets, cost advantages of labour, technical manpower
domestically available ore and reducing price of reductant blend; the growth in ferroalloy
production is stymied by inadequate infrastructure, rising cost & availability issues in
thermal coal, fear of getting saddled with old technology, and lack of capital.
The global slowing of demand for ferroalloys, the re-emergence of China as a major
exporter and the threat of imports are other factors that the Indian ferroalloy industry
would need to tackle.
Therefore it is very difficult to predict if the ferroalloy industry in India can repeat the
spectacular double digit growth of the last five years. The only certainty is of ferroalloy
prices; which have been volatile and unpredictable in the past they will remain volatile
and unpredictable in the future: some things will never change!!
Acknowledgements
The author (Prabhash Gokarn) would like to thank the management of Tata Steel
for allowing him to write this paper. The views expressed in this paper are his own
and should not be construed as the official opinion of Tata Steel or the prevalent
views within the company.
References & Sources of Data
1.
2.

Indian Ferro Alloy Producers Association : Annual Reports & Presentations


International Manganese Institute and International Chromium Development
Association : Reports & Conference Presentations
3. CRU, Metal Bulletin & TEX Publications : NiCrMo, Bulk FAM, Ferroalloys Market
Track, Tex Report
4. Data Monitor : Trends & Developments in the Indian Power Market (May10)
5. Planning Commission Website Energy Sector (Dec 2012)
6. Prayas Energy Group : Overview of Indian Energy Trends (2009)
7. Tata Quality Management Service Publication on Innovation (2011)
8. Metal Junction Conference : Indian Steel 2011 (Nov11)
9. iMaritime : India Port Report (Aug03)
10. Wikipedia and other sources on the internet.

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Abbreviations
Fe Ferro,
Mn Manganese,

c/lb US cents per pound of


Chrome Content,

GDP Gross Domestic


Product,

Si Silicon,

LG - low grade,

Cr Chrome,

MG medium grade,

Ch Charge

HG high grade,

US United States,

MVA Million Volt Ampere,

T&D Transmission &

CAGR Compounded Annual

MT Metric Tons,
IPP Independent Power
Plant,
CPP -Captive Power Plant,
EU European Union,

Prabhash Gokarn

Distribution,
OMC Orissa Mining
Corporation,
SA South Africa

CIS Confederation of
Independent States,

Growth Rate,
FII foreign institutional
investment,
FDI foreign direct
investment

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