Ferro Alloy Prices Fall To Distress Levels
SAIL, through the Bhilai Steel Plant, has floated a tender for a large quantity of ferro alloys. The tender is for 50,000 tonnes of ferro manganese, 15,000 tonnes of silico manganese and 29,500 tonnes of ferro silicon. The supplies will commence sometime in 1998 as some of the supplies from an old tender have yet to be completed. The last date for offers is March 2.
SAIL, being the largest buyer of ferro alloys, was the industry's saviour but the industry is somewhat nervous about the whole process as there is a feeling that SAIL may not buy large quantities as indicated.
SAIL has already bought about 55,000 tonnes of ferro manganese and 20,000 tonnes of silico manganese from Maharashtra Elektrosmelt, its subsidiary company, every year. It buys about 10,000 tonnes of ferro silicon from VISL which has now merged with SAIL. After taking the full production of these two plants SAIL ventures to buy from others.
The price which SAIL pays to suppliers under the old contract was reasonable. But since then prices of manganese alloys have crashed and power costs have increased and the manganese alloy producers are finding it difficult to produce.
Sandur Manganese stopped production for local market when power costs went upto Rs 4 per kwh and is now producing only for export to the extent of NTPC power available.
Ferro alloy prices today have fallen to distress levels. The price of high carbon ferro manganese is around Rs 17,500 to Rs 18,000 per tonne while the price of silico manganese is around Rs 19,500 per tonne. Most of the supplies are coming from West Bengal, where the power rate is 204 paise while it is 350 paise in Madhya Pradesh.
Once M P was known for abundant power supply and low cost power. Today, the rate is 350 paise. Over 22 furnaces with a MVA of 120 to 130 had come up in M P and according to one reliable report all 22 furnaces are now closed.
However, according to one operator 17 furnaces are closed and five are working at 50 per cent capacity. They are somewhat nervous to quote for the SAIL enquiry as the price is fixed for one year and if power costs rise they will be further ruined.
Most ferro producers are now making a beeline to West Bengal where power is cheaper at around 204 paise kwh. Some years back M P was offering similar incentive of low cost and abundant power which facility is now longer available. The entrepreneurs who put up the facilities knew that they would recover their investment in a short while and if in the long run they fail, then the public money would be lost. Incentive of low cost power was introduced in Goa which does not produce power but imports power at high cost and then subsidises it through public exchequer. A number of ferro alloy units were put up in Goa which are now suffering from constant power cuts. Kerala which is deficit in power also invited power intensive units at very low tariffs.
The logic behind these incentives is hard to understand as power intensive industries are not big creators of employment.
Now the exodus has started to West Bengal. Most of the aspirants are approaching the financial institutions and banks to fund their ventures.
They know that their investment will be safe and if the ventures fail after a few years it is the public which will suffer. Some of M P's closed units are also moving to West Bengal.
It is time that a national policy is evolved in sanctioning power intensive units anywhere in the country.
According to reports SAIL has also issued the tender for ferro silicon to Bhutan Ferro Alloys, which has a 15,000 tpy ferro silicon unit.
The unit was a joint venture between Bhutan and a Japanese multinational and 50 per cent of the production was to be exported outside India. Imports from Bhutan are free of import duty as also CVD and can out price any local producer. The power rate in Bhutan is now said to be about 50 paise per unit.
It is also alleged that Bhutan sells its entire production in India thus hurting the local producers. If SAIL resorts to imports from Bhutan then there would be further trouble for the local producers.
With the local prices falling to low levels, imports are not a major threat but if the duties fall further then the industry will be in jeopardy.
As it is, the industry is working at around 50 per cent capacity with some of the major units closed, others suffering losses and even the small units in M P downing their shutters. The coming year will decide how many will survive but there is scant hope for most.