Capacity utilisation dips 62% compared to 65% last year.
At a time when Indian ferro alloys producers have slowly expanded their installed capacity over the years to meet the expected rising demand from steel industry, cheap import from China is steadily grabbing the domestic market share. Used as an ingredient for steel making, ferro alloys consist of around one per cent of overall raw materials in furnace.
Amid expectations of luring figure of steel production of 100 million tonnes by 2012-13, ferro alloys producers have continuously added the production capacity over the last several years. In the 2010-11 financial year alone, the industry added over 0.61 million tonnes to 4.65 million tonnes. Fortunately, the demand of the steel making ingredients has also increased.
But, according to the Indian Ferro Alloy Producers’ Association (IFAPA), the advantages of the demand is muted. This is because of escalating import from China and thereby, an imminent reduction in the capacity utilisation, says IFAPA secretary-general T S Sundaresan.
The latest IFAPA assessment said the capacity utilisation has declined to 62 per cent in 2010-11 as compared to 65 per cent last year. The overall installed capacity of the industry stood at 4.04 million tonnes last year.
Ferro alloys’ production in India has shot up to 2.87 million tonnes in 2010-11, as compared to 2.63 million tonnes in the previous year. Despite over 9 per cent rise in domestic production, the import surged to set the new record this year.
According to IFAPA, an overall imports of ferro alloys jumped by 21 per cent to 218,401 tonnes for the financial year ending March 2011 as compared to 180,590 tonnes in the previous year. In the last five years, overall import of ferro alloys has risen by a staggering 72 per cent.
Apparently, Chinese products are widely accepted by Indian steel makers due to competitive price. Since, the quality of imported goods is almost at par with the product of domestic origin, steel mills prefer the Chinese ferro alloys in order to keep higher margins. Sundaresan said rising import was a major cause of concern for the domestic ferro alloys industry. “Hence, we have recommended the government to raise import duty to 7.5 per cent to protect the domestic industry from cheap imports,” he added. Currently, import duty stands at five per cent.
As for the current level of duty, he says it is not sufficient to protect the domestic industry. The government has over the years reduced the duty on ferro alloys. “This has resulted in domestic players reducing capacity,” he adds.
The imports of ferro alloys have increased as and when the duty is reduced. Overall imports stood at Rs 263 crore, when the duty was reduced from 25 per cent to 20 per cent in 2003-04. Further, the arrivals jumped to Rs 479.3 crore in 2004-05 when the duty was reduced to 15 per cent, and again to Rs 591.3 crore in 2005-06 at 10 per cent import duty.
The overall import surged further to Rs 779.8 crore and Rs 1,089.4 crore when the duty was revised downwards at 7.5 per cent and five per cent in 2006-07 and 2007-08, respectively.
The import value jumped to Rs 1,530 crore during 2008-09, when the duty was further rationalised “nil”. But, a restoration of five per cent of import duty helped reduce import value of ferro alloys worth Rs 1,516.5 crore in 2009-10.
