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Invited Paper for Metals & Minerals Review Ferroalloy
Special January 2013 issue
The Indian Ferroalloy Industry At Cross Roads
Prabhash Gokarn, Tata Steel
1.0 INTRODUCTION TO THE INDIAN FERRO ALLOY INDUSTRY The Indian
Ferroalloy Industry; a part of the Core Sector under Ministry of
Steel; is engaged in supplying crucial intermediates to the Steel
Industry; namely ferroalloys. The Industry has completed five
decades of its existence. Bulk Ferroalloys (viz. Ferro Manganese,
Ferro Silico Manganese, Ferro Silicon, Ferro Chrome, etc.,
manufactured through Submerged Arc furnaces), and Noble Ferroalloys
(viz. Ferro Molybdenum, Ferro Vanadium, Ferro Tungsten, Ferro
Silico Magnesium, Ferro Titanium, Ferro Boron, etc. manufactured
through the Alumino-Thermic process), are used in the production of
steel (as deoxidants, for refining and for alloying).
Depending upon the process of steel making and the type of steel
being made, the requirement of different ferroalloys varies widely.
The principal functions of alloying steel is for increasing its
resistance to corrosion and oxidation, improving hardenability,
tensile strength, high temperature properties (such as creep
strength), wear and abrasion resistance, etc. Since noble
ferroalloys constitute a very small proportion of the total, this
paper is written with a focus on bulk ferroalloys.
The furnace capacity in the Industry was around 600 MVA prior to
liberalization. Capacity addition was over 700 MVA before the 11th
Five Year Plan; another 1600 MVA of capacity has been added during
the 11th
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Five Year Plan. As a result, the furnace capacity has crossed
2,900 MVA and by tonnage it has crossed 5 million tonnes per annum
(Figure 1). Thus, ferroalloy manufacturing capacity has increased
far ahead of the growth in ferroalloy requirement by the domestic
steel industry, and has been export driven. About 30% of the
capacity is idle due to a combination of poor planning, poor
economics and local problems (labour, electricity, management
issues etc.).
1.1 New Capacities Coming Up
Existing units are expanding and new ferroalloy units coming up
(Haldia-West Bengal, Visakhapatnam-Andhra Pradesh, parts of
Chhattisgarh, Orissa and Jharkhand). It is expected that another
800 MVA to 1000 MVA capacity will be installed and will be in
commercial production in the next two to three years. These units
are also setting new capacities for electricity generation and it
is expected that about 1000 MVA of CPP capacity will be added in
next two years.
2.0 GLOBAL TRENDS IMPACTING THE INDIAN FERRO ALLOY INDUSTRY
2.1 Global Shift in Stainless Steel and Carbon Steel
Production
2.1.1 Stainless Steel production has seen shift in production
from EU and Japan to China. There has been a steep reduction in
stainless steel production in EU (due to the economic crisis) and
in Japan(partly due to effects of the Tsunami and due to global
recession). This reduction in stainless steel production in the
developed economies is likely to continue. (Figure 2)
On the other hand stainless steel production in China and India
has seen significant growth: with over 45% of global stainless
steel likely to be produced in China by 2015 as against 35% today;
India is also likely to see a growth in stainless steel production
at
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~ 10% in the next 5 years.
2.1.2 Carbon Steel production in China has grown at a CAGR of
12% and in India at 8% since early 2000 and this growth is not
likely to taper off anytime soon. On the other hand the developed
economies of Japan, US, and EU grew in single digits in the same
period and are now declining. (Figure 3).
Thus the demand for ferroalloys too has become Asia Centric.
Given both China and India are also large producers of ferroalloys
(China & India - FeCr, Mn alloys, additionally, China FeSi,
refined alloys and most noble ferroalloys), and are large exporters
to the rest of the world; the growing consumption at home has very
significant impact on global trade. China has imposed export taxes
on ferroalloy exports and has in many cases
become a net importer; India seems to be going the same way. 2.2
Borderless World 2.2.1 Trade Barriers : Globally, trade barriers to
imports are decreasing, for example the decrease on duties on ferro
alloy imports has reduced from a peak of 105% in 1993 to 0% in 2008
with duties currently just 5% (Figure 4)
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2.2.2 Ocean Freight : With development of shipping
infrastructure, ocean freight no longer remains a significant cost,
a step towards making geography, history (Figure 5)
2.3 Reducing Differential in Power Situation in Major Ferroalloy
Producing Countries :
Power is the second most important requirement for bulk
ferroalloy production. India has historically suffered from huge
power shortages, inefficient power generation & transmission
and high cost, partly due to cross subsidies and T&D losses
(which include power theft). However, privatization of power
generation (both CPPs & IPPs) and power distribution has
brought significant improvement in the Indian power situation in
the last decade.
While India is still at a disadvantage with respect to power
cost in South Africa and Kazakhstan, the gap between China and
South Africa on the one hand and India on the other regarding cost
of power and its availability has clearly reduced, making
ferroalloy production in India much more sustainable. The power
crisis in South Africa is well known, while China too has seen
acute seasonal shortages of power and rising power costs.
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3.0 OPPORTUNITIES FOR GROWTH OF THE FERRO ALLOY INDUSTRY IN
INDIA
The above factors have given the Indian Ferro Alloy Industry
immense and very significant growth opportunities that have led to
a very rapid growth in ferro alloy production and exports in the
last decade. (Figure 6).
3.1 Exports from India : China is the worlds largest Manganese
Ore producer by volume and by Manganese content producing 35% of
the worlds total production. China has traditionally been a large
exporter of Manganese Alloys.
Since late 2009, China has become a net importer of SiMn.
Ironically, it was China that in the past exported the highest
volume of SiMn. Also, the steep increase in the production of
stainless steel and carbon steel in China (Figure 7 and Figure 8)
means it has become a significant market for ferroalloys, located
at Indias doorstep.
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Chinas withdrawal from supplying bulk ferro alloys and instead
importing them on a large scale has led to a steep increase in
Indian exports of ferro alloys. (Figure 9).
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3.2 Domestic Consumption of Ferroalloys : The increase in
production of both carbon and stainless steel in India over the
last decade has led to a significant increase in the domestic
consumption of Ferroalloys in India (Figure 10)
The projected growth of ~8 to 10% of stainless steel and carbon
steel till 2015 augurs well for the continued growth of ferro alloy
production in India (Figure 11 and Figure 12).
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4,0 FERROALLOY INDUSTRY IN INDIA - ADVANTAGES
To summarize, the Indian Ferro Alloy industry has many
advantages that have so far augured well and resulted in the
spectacular growth of ferro alloy production in India. These
advantages are :
4.1 Ability to immediately scale up : 1. Large Capacity for
Ferroalloys
2. Industry currently operating at 60% of rated capacity
3. New capacities coming up - near ports (Vizag, Haldia).
4.2 Location near high growth regions: 4. Freight advantage in
markets such as China, Korea and Japan compared
to Ukraine, Kazakhstan and South Africa
5. Short sailing time, freight advantage
4.3 Cost Advantages over China: 6. Domestically sourced LG &
MG Mn Ore available for blending with
imported HG Mn Ore.
7. Power, labour and inland freight costs comparable to
China.
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4.4 Power availability no longer such a large differentiator: 8.
Commissioning of many new power plants including captive
ones(CPP)-
may help reduce power availability issues (faced today by SA,
China)
4.5 Backward linkage to Ore:
9. Chrome Ore - Indigenous Chrome ore of high grade quality
available to some players (integrated players like IMFA & Tata
Steel, and those based in Orissa with allocations from OMC)
10. Manganese Ore Low and medium grade Manganese ores abundantly
available but need to be sweetened by import of high grade/high
Mn/Fe Manganese ores.
4.6 Reductants :
11. Coke : India has been almost totally reliant on imports of
coke from China specially for making Ferro Chrome. High coke prices
and the 40% export tax levied on coke exports by the Chinese
government have reduced the cost competitiveness of the ferro alloy
industry in India. Increasing use of alternative reductants
including indigenous coke/coal for ferro alloy making has helped
the industry to mitigate the high cost to some extent. The slowing
GDP growth in China and the global recession have prompted the
Chinese government to withdraw this tax, which will further help
the Indian industry to grow.
4.7 Rising domestic consumption of ferroalloys : The projected
~8% growth in carbon steel and ~10% growth in stainless steel
production augurs well for the ferroalloy industry in India.
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5.0 THEN WHY IS THE INDIAN FERRO ALLOY INDUSTRY AT THE CROSS
ROADS ?
There are however significant developments that can either
derail the Indian ferro alloy growth story or propel it to greater
heights. These developments are :
1. Increasing restrictions in the availability of the key raw
materials i.e. Manganese and Chrome Ores India has been self
sufficient in both Manganese and Chrome Ore and till recently was
even a very significant exporter. However, because of a deficiency
in lumpy chrome ore and restrictions in the free availability of
friable chrome ore due to internal policies of the largest supplier
(OMC); imports of chrome ore into India are rising rapidly.
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High Grade Manganese ore being in short supply, imports of
Manganese ore into India have risen dramatically. Manganese ore
imports into India are at 1.6 Mn tonnes for Jan-Aug 2012, a rise of
78% from the same period in 2011. (Figure 13)
India, like China, is highly dependent on South Africa, Gabon,
Australia and Brazil for sourcing of Manganese ore; these four
countries account for ~ 90% of the imports in 2011.
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What is worrying is Chinas use of its financial muscle to buy
mining assets and securing exclusive tie ups that may make sourcing
of ores costlier for India and hamper the growth of ferro alloy
production.
2. Electricity As explained earlier, with the increase in
generation of electricity by public sector utilities, IPPs
(Independent Power Projects) and CPPs(Captive Power Plants); Power
Shortages which were the bugbear of power intensive industries in
India such as the ferro alloy industry were mitigated to a large
extent and that allowed for the spectacular growth of this
sector(Figure 14).
However, coal being the predominant energy source(Figure 15),
there is likely to be an impending power crisis in this country due
to thermal coal availability issues, coal linkage issues; delay in
startup of new coal mines and de-allocation of coal blocks due to
the Coal-gate scam. The rising cost of thermal coal globally and
restrictions imposed in Indonesia on thermal coal asset ownership
and preferential allocation agreements too have been affecting the
growth of the power sector.
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3. Infrastructure Indian industry has had to grapple with
inadequate and crumbling
infrastructure stretched and overburdened roadways, railways and
ports - that raises the cost of business. However we are seeing a
rapid improvement in infrastructure :
a. Roads - India plans to spend approximately US$70 Billion by
2013 to modernize its roads. India has rebuilt over 18,300
kilometers of 4 or 6-lane highways(including the 4-lane Golden
Quadrilateral) inter-connecting major manufacturing centers and
ports. The country is adding ~11 kilometers of new highways daily,
and it is likely that we would add about 600 kilometers of modern
highway per month till 2014.
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b. Railways - India has one of the world's largest railway
networks comprising 115,000 km of track over 65,000 km carrying 2.8
million tons of freight daily. Despite this the rail network is
stretched and requires urgent expansion and modernization.
Improvements in the form of own your own wagon, freight
rationalization etc have helped.
c. Sea Ports - India has a long 7500km coastline in which there
are 13 major ports and 187 smaller ports, handling about 560
million tonnes of cargo (which is growing at a rate of 7.7%)
annually. While many major ports are stretched to capacity,
specially Paradip, Vishakapatnam and Haldia, which handle most of
the ferroalloy traffic; upcoming ports like Dhamra in the east;
Pipavav, Adani, Dahej, Mundra and Hazira in the west and Vallaradam
in the south would help reduce traffic congestion.
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These improvements in infrastructure will help in the further
growth of the ferroalloy industry. The concern is that these
improvements will not happen rapidly enough.
4. Capital Lack of capital and high rates of interest on loans
have in many ways stymied the growth of ferroalloy units in the
past. With many units having fallen sick due to poor project
planning, execution and economics, Indian banks have become wary of
exposure to this sector. Like in other sectors, there is increasing
foreign investor interest in the ferroalloy sector. This has come
in terms of both investments through the stock exchanges in listed
entities (FIIs) and more recently, in form of direct investments
through JVs (FDI). This increased availability of finance for well
planned projects could result in further rapid expansion of the
ferroalloy industry. However, talks of lowering Indias Credit
Rating due to the slow pace of reforms, the negative sentiments
caused by issues such as debate over FDI in Retail and the feeling
of Government inaction could badly affect availability of foreign
funds.
5. Lack of Technology Infusion and Innovation While Indians have
been past masters of local innovations (jugaad Figure 16),
systematic industrial research, (that allowed the US, Japan, the
former Soviet Union, South Korea and some countries in the EU to
leapfrog in industry led GDP growth) is severely lacking in
India.
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As a result India risks being continually overshadowed by China
and significant development of new technologies in ferroalloy
making bypassing the Indian ferroalloy industry (Figure 17).
6. Markets The rapid growth in exports of ferroalloys led to
rapid growth in ferroalloy production in India and today exports
form a substantial proportion(~50%) of the market for ferroalloys
(Figure 18). Ferroalloys from India were exported to EU, Japan and
South Korea. The first exports of ferroalloys to China (hitherto a
major ferroalloy exporter) from India occurred in 2004.
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The shift in steel production from the developed nations to
China has led to China becoming the largest consumer (and in some
cases producer) of ferroalloys. Thus, till recently, China has been
the dominant destination for ferroalloys from India. With slowing
Chinese steel growth and a healthy growth in demand for ferroalloys
domestically, it is likely that exports, currently almost 50% of
total production, will fall to a level of 30-35%(level attained
during 2005-08) in 2013. The two factors of concern are : a) With
reduction in export duties in China, the re-emergence of China as a
large
exporter of ferroalloys may make it difficult for Indian
ferroalloy players to retain market share in a shrinking global
market and
b) The domestic demand for ferroalloys, although growing, will
not be able to take up the slack if exports are hit.
This would mean that the bulk ferroalloy industry could see a
period of de-growth in the short term.
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7. Rising Ferro Alloy Imports into India Although India is a
large exporter of Ferroalloys due to the uncertain economic
condition in the developed world, many ferro alloy companies
(mainly from the CIS, Russia and Kazakhstan) which restricted
themselves to supplying to customers in the developed world(US, EU,
Japan) and to China have started making in-roads into India. This
has led to a steep rise in imports of ferroalloys (25% CAGR over
last 5 years) and does not augur well for the Indian Ferro Alloy
industry (Figure 19).
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6.0 CONCLUSION
Thus while there are many positives for the ferroalloy industry
in India, viz. scalability, location near high growth markets, cost
advantages of labour, technical manpower domestically available ore
and reducing price of reductant blend; the growth in ferroalloy
production is stymied by inadequate infrastructure, rising cost
& availability issues in thermal coal, fear of getting saddled
with old technology, and lack of capital. The global slowing of
demand for ferroalloys, the re-emergence of China as a major
exporter and the threat of imports are other factors that the
Indian ferroalloy industry would need to tackle. Therefore it is
very difficult to predict if the ferroalloy industry in India can
repeat the spectacular double digit growth of the last five years.
The only certainty is of ferroalloy prices; which have been
volatile and unpredictable in the past they will remain volatile
and unpredictable in the future: some things will never change!!
Acknowledgements
The author (Prabhash Gokarn) would like to thank the management
of Tata Steel for allowing him to write this paper. The views
expressed in this paper are his own and should not be construed as
the official opinion of Tata Steel or the prevalent views within
the company.
References & Sources of Data 1. Indian Ferro Alloy Producers
Association : Annual Reports & Presentations 2. International
Manganese Institute and International Chromium Development
Association : Reports & Conference Presentations 3. CRU,
Metal Bulletin & TEX Publications : NiCrMo, Bulk FAM,
Ferroalloys Market
Track, Tex Report 4. Data Monitor : Trends & Developments in
the Indian Power Market (May10) 5. Planning Commission Website
Energy Sector (Dec 2012) 6. Prayas Energy Group : Overview of
Indian Energy Trends (2009) 7. Tata Quality Management Service
Publication on Innovation (2011) 8. Metal Junction Conference :
Indian Steel 2011 (Nov11) 9. iMaritime : India Port Report (Aug03)
10. Wikipedia and other sources on the internet.
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Abbreviations Fe Ferro,
Mn Manganese,
Si Silicon,
Cr Chrome,
Ch Charge
MVA Million Volt Ampere,
MT Metric Tons,
IPP Independent Power
Plant,
CPP -Captive Power Plant,
EU European Union,
c/lb US cents per pound of
Chrome Content,
LG - low grade,
MG medium grade,
HG high grade,
T&D Transmission &
Distribution,
OMC Orissa Mining
Corporation,
SA South Africa
GDP Gross Domestic
Product,
CIS Confederation of
Independent States,
US United States,
CAGR Compounded Annual
Growth Rate,
FII foreign institutional
investment,
FDI foreign direct
investment