Better use of built capacity needed.
Ferro alloys being intermediate products, their fortunes are linked to the state of wellbeing of the steel industry. But here, for some inexplicable reasons, the capacity build up of ferro alloys is hugely in excess of the requirements of domestic producers of carbon and stainless steel. What is more distressing is that despite the industry’s hurtful low capacity use, significant new ferro alloy capacity is in the pipeline, particularly in SEZs.
Indian ferro alloy production during 2010-11 will be an estimated 2.51 million tonnes against 2.38 million tonnes in the previous year. Compare this with capacity of 4.04 million tonnes, including 2.5 million tonnes of manganese alloys and 1.3 million tonnes of chrome alloys. In fact, this capacity is adequate to support crude steel production of 120 million tonnes, whereas the country made 66.8 million tonnes of steel in 2010. According to the steel ministry, the country will have crude steel capacity of 110 million tonnes by 2012-13.
Chasing new capacity when many ferro alloys furnaces are not in use gives the impression that some industry constituents have got their priorities wrong. The secretary general of the Indian Ferro Alloy Producers Association (Ifapa), T S Sundaresan, does not find merit in building new capacity at this stage. The focus should be on making units self-reliant in power, the cost of electricity from the grid being exorbitant enough to compromise the global competitiveness of the industry.
Power has the most significant bearing on the viability of a ferro alloy unit. A unit making ferro manganese will have electricity constituting around 40 per cent of the production cost. This goes up to 65 per cent in the case of a ferro silicon unit. Leaders in the industry, as their big investments in building power plants will show, have realised the importance of becoming self-reliant in supply. Efforts will have to be made at the same time to secure coal deposits locally and overseas.
An Ifapa table shows India’s competitiveness in making ferro alloys at par with producing nations in the CIS, a little behind South Africa and China and far ahead of Japan and Europe. But, whatever the degree of our competitiveness, ferro alloy producers here take the price cue for their sales in the world market from South Africa and Kazakhstan. In a disappointing show, India’s exports of ferro alloys fell to 862,740 tonnes in 2009-10 from 960,100 tonnes in the previous year. Sundaresan says “The industry has got to be more outgoing to be able to make better use of the capacity it has built and now also in the process of creating.” China discouraging exports of ferro alloys over the last few years and it being a net importer of the intermediate materials presents Indian exporters with an opportunity which should be fully made use of. Sundaresan says, “The target markets for India will remain China, South Korea, Japan and Southeast Asia.”
India has a low Customs duty regime, in spite of nursing substantial idle capacity. So, a good quantity of imports take place. When the levy in 2005-06 was 10 per cent, we imported 97,334 tonnes of ferro alloys. These, however, jumped to 187,956 tonnes in 2009-10 at five per cent duty and in the first 10 months of 2010-11, these were 106,000 tonnes.
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In view of this, Ifapa wanted the government to charge 7.5 per cent Customs duty. The industry’s plea did not, however, find favour with the finance ministry. There is the official perception, and rightly so, that low import duty acts as a pressure on industry to improve efficiency. Improvement in efficiency in our steelmaking in recent years has undeniably got much to do with the low tariff of five per cent.
Ifapa pitching for a higher duty on ferro alloy imports may have come unstuck, but the government has offered quite a few reliefs, including lowering of import duty to 2.5 per cent from 7.5 per cent on vanadium pentoxide and vanadium sludge, which go into the making of noble alloys. Ferro nickel, for which the country is fully import-dependent, will now be charged duty of 2.5 per cent and not five per cent.
Working of ferro chrome and ferro silicon units depends on the state of the stainless steel industry. The sanction of duty-free import of stainless steel scrap and benefits to accrue from import duty relief for ferro alloy inputs would result in lowering of the production cost of stainless steel. And if manufacturers redeem their promise of passing on this benefit to stainless steel buyers, then the demand for the metal will get a boost. In a report prepared ahead of the Budget, Steel Market Intelligence said the Indian demand for stainless steel will grow around 10 per cent annually to four million tonnes by 2016, when crude stainless steel production will be five million tonnes. As the budgetary concessions will give a fillip to local demand, there will now be urgency for early commissioning of stainless steel capacity at different stages of implementation.