Malaysian ferroalloys industry a threat to Indian exports

Industry officials will love to believe the worst is over for the ferroalloys industry and prices of intermediate products that go into adding strength and rust proofing of carbon, alloy and stainless steel, have bottomed out. Crystal gazing into commodity prices is, however, fraught with risk. Did anyone foresee that prices of commodities from iron ore to coal and from aluminium to steel would slide to their current levels since the end of super cycle? As for ferroalloys, the fortunes depend on the steel industry. In the current year, steel prices are down one-third and the fall in gross margins of steel producers is alarming. In their drive to cut costs in every possible way, steelmakers are forced to bargain hard when they buy raw materials or intermediate products, including ferroalloys. India has a significant profile in mining of chrome and manganese ores and production of ferrochrome, ferromanganese and ferrosilicon. Our production of chrome ore progressively came down from 3.3 million tonnes (mt) in 2005 to 2.8 mt in 2014 in keeping with the policy to conserve the resource and mining disruptions due to court interventions and environment issues.

In any case, India with chrome ore reserve of 70 mt has only one per cent share of global proven deposit. Around 85 per cent of world reserve of this ore is found in South Africa and Zimbabwe. No wonder, India is importing growing quantities of high-grade chrome ore for blending with locally mined material. However, with an annual output of 1 mt, India figures prominently in the global chrome alloys industry and trade. Our stainless steel production being 3 mt, the domestic requirement of ferrochrome is about 460,000 tonnes, leaving us with an exportable surplus of half the alloy production. China, which had a share of 22 mt in world stainless steel production of 42 mt in 2014, remains the biggest importer of ferrochrome despite its building major capacity of the alloys depending entirely on foreign origin chrome ore. Naturally, China is a major market for Indian ferrochrome. Japan, South Korea and European Union are the other leading importers of the alloy used in making stainless steel.

India has reserves of 138 mt and resource of 240 mt of manganese ore, the raw material for production of ferromanganese and ferrosilicon. The country being traditionally slow in converting resource into reserve and also because of insufficient investment in ore beneficiation, we required to step up imports of mostly high-grade manganese ore from 2.2 mt in 2013-14 to 3.17 mt last year. The crisis in the industry is manifest in a major way in Andhra Pradesh (AP) where high power tariff is playing havoc. In AP, which accounts for 30 per cent of industry capacity, power alone has a share of "anything between 40 and 65 per cent of ferroalloys production cost." As the crisis is deepening in AP, ferroalloys exports by state units are taking a hit. This is happening at a time when a new ferroalloys supply hub is fast emerging in Sarawak in Malaysia. Industry officials have apprised the government that as power rates in Sarawak will be considerably lower than here, Malaysian ferroalloys factories getting ready for commissioning in close succession will have a competitive edge in world market.

Besides the advantage of low-cost power, the distinguishing feature of the Malaysian industry is the convergence of promoters with major stakes in manganese ore mining in South Africa and consumption of finished products like ferromanganese and ferrosilicon. An Indian industry official tracking the Malaysian development says the "principal action is at Samalaju Industrial Park at Sarawak's Bintulu region". A major plant at the park belonging to Sakura Ferroalloys has two dual product submerged electric arc furnaces with annual capacity of 107,000 tonnes of high carbon ferromanganese and 67,000 tonnes of silicomanganese. The South African group Assamang - with 54.36 per cent ownership of Sakura - will be supplying manganese ore, while the other two promoters Sumitomo Corporation and China Steel Corporation of Taiwan will buy or help in marketing finished products. The Malaysian development will make it difficult for Indian groups to strike long-term sale contracts with foreign steelmakers.