Alloy units face power crisis

A majority of ferro alloy units in the country are facing the threat of closure in absence of adequate power supply from the state power grids, especially in Karnataka, Orissa, West Bengal, Andhra Pradesh and other potential states. Four medium to large producers in Karnataka have already shut their shops due to the inability of the state governments to supply electricity to these units. Ferro alloys manufacturing is a Rs 4,000-crore industry in the country.

The existing units are operating at 40-70 per cent capacity. However, the government is least bothered about the industry's plight as China is ready to supply as much ferro alloys as the country wants. Steel producers apply mixture of different ferro alloys in low proportion to produce steel of their choices.

"We want the government to provide us a level playing field with global units in terms of power tariff," said T S Sundaresan, Secretary General, the Indian Ferro Alloy Producers' Association.

Domestic ferro alloys units pay an average Rs 3.25 a unit to procure power to borrow from state grids in comparison with 3 cents (equivalent to Rs 1.20) a unit payed by overseas units.

Power constitutes about 40 per cent of the total cost of making ferro alloys. On an average, a tonne of ferro alloy production consumes about 3,500 units of electricity. According to reports, most ferro alloys manufacturers are in poor health due of the mounting losses as a result of higher power costs and lower price realisation. But with the advent of captive power plant and power purchase agreement (PPA) with state electricity boards (SEBs) many such companies have managed to sustain their business. Balasore Alloys in Orissa and Facor Alloys in Andhra Pradesh saw a turnaround in their fortune in the recent past. In West Bengal, ferro alloy units inked power purchase agreements with the state grids, Damodar Valley Corporation etc.

If the price realisation of ferro alloys falls below Rs 27,000 a tonne, it will become commercially unviable for the companies to produce ferro alloys. Instead, they will prefer selling equivalent power directly and make contribution margin of about Rs 5000 a tonne, which is about Rs 1,000 more than what they would have made by selling ferro alloys.

Steel industry on an average requires about 2,000 units of power per tonne of steel, starting from sponge iron to finished saleable steel product. Ferro alloys, which are crucial additives for steel and constitute anything from 1-3 per cent by weight of steel, is also a very power intensive industry. Power consumption for ferro alloys manufacturing is approximately 3,000-4,000 units a tonne.

Generally power cost constitutes about 7-9 per cent of the total steel making cost, depending on whether the steel is made using blast furnace or electric arc furnace (EAF). Captive power plants reduce the power cost by more than half, hence materially improving the margins for companies having the same.