Ferro alloys, the intermediate products used in the making of steel as deoxidants and for rust proofing, have seen their fortunes take a steep dive since October 2008. Some recent improvements in their prices are not proving enough to balm the wounds of manufacturers. That the prospects for ferro alloys are linked to steel are stating the obvious.
The Indian ferro alloys industry is much younger than the steel industry here. But in the past four decades, the former has developed capacity of 3.64 million tonnes, including 2.1 million tonnes of manganese alloys and 1.3 million tonnes of chromium alloys and that leaves it with a good amount of export surplus. In the process it has become particularly vulnerable to global trading condition.
Thanks to the long good run of the global steel industry till the third quarter of 2008, ferro alloys prospered in tandem. The first half was witness to global ferro chrome producers struggling to execute orders from the steel industry. At one point then, high carbon ferro chrome fetched record spot prices of $2 a pound, CIF basis.
The bottom subsequently, however, fell out of ferro alloys as steel makers, except in India and China, were obliged to cut capacity use ranging from 25 per cent to 50 percent. The disappearance of steel demand from construction, automobile and machinery building sectors as the major economies slipped into recession, particularly in the final quarter, which saw the world register a negative growth in the metal’s production during 2008.
Ispat Industries chairman Pramod Mittal who also leads a major ferro alloys group says trading condition became so difficult since November that ferro alloys units in South Africa responded to the crisis by switching off furnace capacity from 80 to 100 per cent. The severe power crisis in that country also contributed to the misery of ferro alloys manufacturers there. The uncertain power outlook is leading to indefinite postponement of eight major South African ferro chrome projects totalling capacity of 1.9 million tonnes.
May not be to the same extent as in South Africa, our ferro alloys industry which generally operates at capacity of 65 to 70 per cent had also to effect some sharp cuts in production since November when export orders from Japan, South Korea, Europe and the US virtually dried up. Indian ferro alloys exports were down from 902,542 tonnes in 2007-08 to 849,291 tonnes last year. Exports would have been much less but for good shipments in the first half.
Scan the balance sheets of the listed ferro alloys companies and you will know what a hit the industry took in 2008-09. Remember they are the ones with the advantage of mines linkages and own power units. So where the market collapse has left the ones without the twin benefits is not difficult to imagine.
The earlier happy days encouraged the leading ferro alloys groups to plan ambitious capex programmes. Responding to the now difficult times, Mittal has done some deep pruning of Balasore Alloys’ capex plans leaving only the building of captive power complex intact. Difficult times call for moderation of ambition and this is happening in the industry across the board.
As is the want of manufacturers everywhere, faced with big falls in demand and prices, our ferro alloys units are seeing the devil in the liberal import regime for the finished intermediates. After much pleading with the government, they could get a levy of 5 per cent imposed on ferro alloys imports.
But will that be enough to curb imports? Industry spokesperson T S Sundaresam wants a 10 per cent customs on all ferro alloys except ferro nickel which is not domestically available. This and even higher rates of import duty were prevalent in the past. The industry is asking for a 10 per cent customs so that it gets a “level playing field.” Moreover, the duty should necessarily be calibrated in tune with the changing trade reality.
Sundaresam argues that the demand for level playing field, which should not be mixed up with seeking protection, also calls for the government doing away with charging a 2 per cent import duty on chrome and manganese ores. The 3 per cent spread cannot compensate for the three to four times higher power bill that Indian manufacturers bear compared with their counterparts in South Africa, Kazakhstan and Russia.
The industry does not tire of complaining about the chrome and manganese ores pricing policy of state enterprises MOIL and OMC owning vast tracts of mineral bearing areas. Moreover, ferro alloys units outside Orissa are angry that OMC shies away from giving them any chrome ore on one pretext or another. Such complaints need to be looked into and corrected if proved true.
