Ferro Alloy Imports Have Hit Domestic Producers

BS: Can you throw some light on the present status of the ferro alloy industry and the trade as a whole?

D M Neterwala: The ferro alloy industry is passing through one of its worst period and its sustenance in the country has raised a big question mark. The sudden introduction of liberalisation and globalisation has resulted in excess capacity. The drastic reduction in import duty on one hand and steep increase in power tariff, railway freight, decline in international prices to the rock bottom level and very slow growth rate in steel production are some of the major problem areas.

 

BS: What is the present installed capacity of the industry, and what rate is it operating now ?

DMN: The present transformer capacity has crossed the 1,000 mva level and the tonnage has crossed 1.40 million tonnes. Manganese alloys capacity is around 800,000 tonnes, ferro silicon 175,000 tonnes and ferro chrome about 350,000 tonnes. In addition, there exists an installed capacity of 150,000 tonnes of 100 per cent export oriented charge chrome from 3 units.

The present production is less than 50 per cent of the installed capacity. If export production is excluded from the total production, the operating rate is only around 35 per cent for domestic demand.

The reasons for lower operating rate are lack of domestic demand, increase in imports at cheaper prices from China, Russia, Kazakhstan and South Africa. Exports could not be increased due to very high power cost as compared to power tariff in other ferro alloy producing countries.

BS: Explain the government's policy vis-a-vis the industry. The ferro alloy production is on the decline whereas the import of the same is increasing. Why so ?

DMN:The government has liberalised the industrial licensing policy, export-import policy, FERA policy, trade policy, corporate legislation, financial and fiscal sector etc. from 1991 to facilitate the process of globalisation. This came as a rude shock to the industry that had lived in a protected market, used to work with restrictions for utilisation of indigenous inputs only.

The liberalisation and delicensing have resulted in number of small and medium scale units emerging in ferro alloy production. Approximately 40 per cent of the present capacity has come up during the post liberalisation. The installed capacity has increased tremendously whereas the domestic demand has not in same proportion.

There has been a drastic change due to intensive competition in the domestic and world market. In bulk ferro alloys the supply has always been in excess of the demand.

As per the liberalised policy, government has to supply raw materials at an internationally comparable price to enable Indian producers to compete in the world market. Power as a major cost of production accounts for 40 to 70 per cent of the cost of production, depending on the ferro alloys produced.

The industry was not given a level playing field initially. However, the government subsequently sanctioned power from NTPC, one of the major power producers, at NTPC tariff plus wheeling charges from the state government.

Still, states like Madhya Pradesh have not implemented the supply of NTPC power to the units for export production. NTPC power tariff is also higher than that available to other ferro alloys producers in other parts of the world. India, still, is able to export 25 per cent 30 per cent of its production in the world market and has established itself as a regular exporter of ferro chrome, charge chrome and silico manganese in the world market.

India had started its ferro alloys production in late fifties and was meeting the requirement of the domestic steel industry. The balance was exported. Production of ferro alloys was around 300,000 tonnes during 1985-86, it jumped to 618,000 tonnes in 1991-92, and the same has increased to the maximum of 796,000 tonnes during 1995-96.

However, production started falling during 1996-97 and was around 694,000 tonnes. The production is expected to fall further this financial year, excluding the production for export purposes.

The industry was protected earlier by the duty structure, but the same was relaxed from 1991-92. The duty, which was 105 per cent in 1991-92 has come down to 20 per cent in 1997-98, excluding the 5 per cent levy of additional custom duty. International prices have now come down to the rock bottom level and the input costs have also increased steeply.

Imports were working out cheaper than the domestic produced material. The imports are thus on the rise. Further, the government has introduced schemes for steel exporters to import raw material without any duty. Thus more steel producers are importing ferro alloys at rock bottom prices sans customs duty.

The credit period of 180 days on the import transaction is an added attraction. Imports are cheap mainly because of the very low power tariff abroad, ranging from 39 paise to 113 paise per unit, as against the power tariff in India, ranging from 323 paise to 407 paise per unit in different states. If power made available at an internationally compatible tariff India could utilise its capacity and export more and earn foreign exchange.

BS: What is the current export growth of ferro alloys and how can it be increased ?

DMN: Ferro alloys export, as we explained earlier, at the present power tariff is not remunerative at all. Since the government has given power at NTPC tariff for exporting units in different states, export is possible though not very remunerative. India was exporting around Rs 250 crore till 1994-95 and when the NTPC power was given for this industry, exports jumped to Rs 500 crore the next year.

However, it has gone down during 1996-97, mainly due to abrupt withdrawal of NTPC power in No-ember/December, 1996 for nearly about five months. Since NTPC power was restored in April/May, 1997 in most of the states, the exports are increasing and will keep growing provided there is a continuous supply of NTPC power on a regular basis.

The Chinese, Russian, Kazakhstan and South African producers dominate the export market with their low prices and Indian exporters are finding it difficult to retain their share due to high input costs. Our industry can increase its exports substantially to Rs 600 to Rs 800 crore in the next 2/3 years.

BS: How do you see the post-GATT scenario in the domestic ferro alloy industry by 2005?

DMN: By 2006-07, steel production is expected to be around 48 million tonnes. The requirement of ferro alloys would be around 1.3 million tonnes. The industry has already created capacity to meet the demand of steel industry over 2006-07 and made an investment of Rs 3,000 crore on capital equipment and given employment to over one lakh persons directly and indirectly.

The government should help the ferro alloy industry in setting up captive power plants by giving soft loans on long term repayment basis from banks and financial institutions.

There is abundant quartz, chrome ore and to some extent manganese ore in the country and it would be appropriate that the ferro alloy industry make use of these available resources of raw material and by setting up captive power plants, the industry could fully meet the domestic requirement of ferro alloy for the steel industry at very competitive prices.

Indian ferro alloys are comparable with international standards and the country has already established itself as a regular exporter of H C ferro chrome, charge chrome and silico manganese in the world market. There is no need to upgrade the technology in the country.