Ferroalloy units are an adjunct to the carbon and special steel industry. Logic demands that capacity build-up in ferroalloys will stay in sync with expansion in the steel industry plus export prospects in the near and medium term of alloys in the manganese and chrome families. It is, therefore, logic, defying that groups went ahead to build ferroalloy capacity of 5.15 million tonnes (mt), including 3.16 mt of manganese alloys, 1.69 mt of chrome alloys, 250,000 tonnes of ferro silicon and 5,000 tonnes of noble ferro. But production of all alloys in 2011-12 was some three mt. Interestingly, large languishing capacity in the industry has not dissuaded some units in the chromium segment from building new electric furnaces. The totally integrated units with upstream facilities like chrome ore and coal mines and power and, therefore, belonging to the lowest cost quartile, could find justification in owning more capacity. This is no less due to their success in exports, including signing of long-term contracts with stainless and alloy steel producers in China and other Asian countries.
At the same time, irrespective of the benefits that some individual constituents may derive by building new furnaces, large capacity overhang does not do the industry any good. In chrome alloys, capacity use is about 57 per cent. "No doubt, overcapacity, except in the very small noble alloys segment is of concern. I will suspect this has come to happen for two reasons. First, ferroalloys capacity was built to the present level anticipating much faster growth of the Indian steel industry. Capacity with ferroalloys units in the country could support steel production of over 120 mt. But, our 2012 steel production was up 4.3 per cent year-on-year to 76.7 mt. Second, some groups ventured into the ferroalloys sector without the advantage of backward integration thinking investments would fetch good returns. But this is a cyclical industry, roughly with alternating three years of good and bad runs. The industry is having difficult times for over six months," says Indian Ferro Alloys Producers' Association (IFAPA) secretary general T S Sundaresan.
No doubt, the local industry would have got some relief had ferroalloys of foreign origin in large quantities not found their way here taking advantage of a five per cent import duty. Industry officials complain that the local units' global competitiveness is compromised to some extent by the compulsion to use high quality lumpy manganese and chrome ore brought from a number of countries, subject to customs, in blends with local ores and high electricity cost, specially for units without captive power. No wonder then that between 2008-09 (when import duty was fixed at five per cent) and 2011-12, India's imports of bulk and noble ferroalloys rose from 132,748 tonnes to 271,896 tonnes. In the first nine months of the current year, imports amounted to 192,272 tonnes. Sundaresan will not put his bet on any improvement in the outlook for the sector till July. Importance of exports for the sector nursing large idle capacity cannot be overemphasised. Indian ferroalloy exports in 2011-12 amounted to 1.533 mt, including 732,400 tonnes of silico manganese. At 1.324 mt with silico manganese alone having a share of 716,782 tonnes, exports fared well in the first three quarters of 2012-13. Incidentally, India is now the world's largest exporter of silico manganese.
Meantime, the finances of local units without either captive mines or power will be further stretched, not a little due to the weight of imports. Unlike in China, uneconomic and environment unfriendly industry capacity here is not extinguished by government edict. But in the natural process, some highly underperforming units buying ores and power from external agencies will perish. The developing situation will create opportunities for fully integrated groups having surplus ore and power to buy struggling standalone furnaces. But such consummation is unlikely, as the few integrated ones in the industry have their own plans of furnace capacity expansion. Respite will come for ferroalloy makers if our steel capacity comes close to the Planning Commission target of 149 mt (against 90 mt in 2011-12) by March 2017, assuming mill capacity use will be over 80 per cent. But there remains a big question over the 12th Plan capacity realisation. The ferroalloy industry, then, should be circumspect in creating new capacity.
Manganese alloys are the intermediate material used as deoxidant and alloying agent in the making of carbon steel and manganese alloy steel. According to an Indian Bureau of Mines 2010 report, our manganese ore resources are 430 mt, of which 142 mt are in the reserve category. High grade ore being about 20 per cent of reserve, and ore production trailing demand by a long margin, our net importer status of the mineral is growing rapidly. Imports of manganese ore, mostly of high quality, rose to 1.961 mt in 2011-12 from 1.3 mt in the previous year, while export during this period fell to 75,000 tonnes from 99,000 tonnes. According to IFAPA, the gap between demand for manganese ore and domestic production will continue to widen through the current Plan period. In the 12th Plan terminal year of 2016-17, the gap will widen to 2.62 mt with production and demand at 4.20 mt and 6.82 mt, respectively.
UNDER PRESSURE
- 3 mt Production of all alloys in 2011-12
- 57% Capacity utilisation for chrome alloys
- 76.7 mt Steel production in 2012, a year-on-year rise of 4.3%
- 271,896 tonnes Imports of bulk and noble ferroalloys during 2008-09
- 1.53 mt Indian ferroalloys exports in 2011-12
- 1.96 mt Imports of manganese ore in 2011-12
