Indian ferrochrome makers queasy as China ups capacity

Through the years, China has become the world's dominant producer and consumer of metals. Unlike South Africa, which has 80 per cent of global chrome ore (chromite) resources, Kazakhstan (six per cent) and India (three per cent), China doesn't own this mineral at all. Still, in 2012, depending entirely on chrome ore imports, China emerged as the world's largest producer of ferrochrome, the intermediate input for making stainless and alloys steels, leaving South Africa behind for the first time.

Expectedly, there is unease among ferroalloys manufacturers in India. Last year, China produced 3.06 million tonnes (mt) of ferrochrome, against South Africa's 2.8 mt. In India's ferroalloys capacity of 5.15 mt, the share of chromium alloys, including ferrochrome, is 1.69 mt. For a number of years, capacity utilisation in India's chromium alloys sector has remained low---57-58 per cent---primarily due to mindless commissioning of new furnaces. In the case ferromanganese, too, India has large idle capacity; new furnaces are built in defiance of market reality.

The discomfort about the rapid progress in building capacity and producing ferrochrome in China is because this could impinge on India's export of stainless steel-making feedstock. India exports more than half its production of ferrochrome; a substantial amount of this is exported to China. Last year, China, which raised its production of stainless steel 14.2 per cent to 16.087 mt, used 4.5 mt of ferrochrome.

GROWING UNEASE

• Last year, China produced 3.06 mt of ferrochrome, against South Africa's 2.8 mt
• In 2012, China, which raised its stainless steel output 14.2%, used 4.5 mt of ferrochrome
• In India's ferroalloys capacity of 5.15 mt, the share of chromium alloys is 1.69 mt
• India's demand for chromite would rise from 2.64 mt in 2011-12 to 4.31 mt by 2016-17
• Demand for stainless and alloy steels in 2016-17 would need 1.73 mt of ferrochrome

This required China's local supply of ferrochrome to be supported by imports of 1.8 mt, in which the share of India was 1,90,000 tonnes. Major suppliers of ferrochrome to China were South Africa (8,30,000 tonnes) and Kazakhstan (4,40,000 tonnes). Since it is bereft of chromite, China has a ravenous appetite for imports to sustain ferrochrome production. In China's imports of 9.29 mt of chromite last year, India had a share of four per cent. Indian exports were in the nature of beneficiated ore.

Responding to ferrochrome producers' pleas that chromite be preserved for local use, in March 2012, India increased the duty on the mineral to 30 per cent of export value from a flat rate of Rs 3,000 a tonne. As a result, exports of chromite fell from 5,28,000 tonnes in 2009-10 to an estimated 2,80,000 tonnes in 2012-13---all of inferior quality, in beneficiated concentrate form.

According to UN Framework Classification, in April 2010, our chromite resources were estimated at 203 mt, including 54 mt of reserves. Odisha's Sukinda valley, home to one of the largest chromite deposits in the world, accounts for 97 per cent of Indian resources. Since the country has only 1.8 per cent of global reserves of chromite, the focus has to be on extensive exploration to convert identified resources of 149 mt into reserve, as well as on discovering new deposits. According to a working group on steel industry, India's demand for chromite would rise from 2.64 mt in 2011-12 to 4.31 mt by 2016-17. The projection assumes the use of Indian stainless steel would rise to 3.39 mt by the end of the 12th Plan from 2.10 mt last year. During the same time, demand for alloy steel, in the making of which ferrochrome is an input, would be 500,000 tonnes. The combined demand for stainless and alloy steels in 2016-17 would need 1.73 mt of ferrochrome. Based on chromite requirement of 2.5 units to make a unit of ferrochrome, local demand for the mineral would stand at 4.31 mt. The chromite mining sector, primarily dominated by ferroalloys units and Odisha Mining Corporation, has the capacity to meet this demand.

Didn't we mine 5.3 mt of chromite in 2006-07? Yes, but in a fit of mindlessness, we exported 1.2 mt! A much bigger act of omission was committed in 2008-09, when exports zoomed to 1.9 mt. Finally, yielding to relentless pressure from the ferroalloys industry, the government raised the duty to a level that would take the shine off chromite exports. Had this been done years ago, the cause of conservation of a mineral we don't have in plenty would have been well served.

Our reserves would be prone to rapid shrinking, unless steps are initiated early to convert resources into reserves; ferrochrome makers are becoming increasingly dependent on imports of high-quality lumpy ore to be blended with the local mineral. India secures its supplies of lumpy ore from Oman, Turkey, Albania and Pakistan. In such a situation, ferrochrome makers would be advised to bid for chromite deposits abroad to ensure long-term supply of lumpy ore. Direct acquisition of foreign deposits might not, however, be easy; it is not a day too soon our ferrochrome makers would be making such attempts. The next best option would be buying equity stakes in foreign enterprises owning chromite mines. This would allow imports commensurate with foreign entity ownership. In an ideal move, companies such as Tata Steel, IMFA and Balasore Alloys are now engaged in developing underground mines to recover higher grades of chromite.