Cost-Cutting May Spell Doom For Ferro Units

The manganese ore price for supply to Japan during 1998-99 has been settled at $2.04 per Mn 1 % of FOB high grade lumpy (Mn 48%), a reduction of four US cents per Mn 1%. The price in 1997-98 was $2.08 for Mn 1%. The BHP of Australia has settled the price with the Japanese steel mills. This is the benchmark price on which other suppliers will have to fix their prices.

The price of high grade manganese ore has been falling over the last two years. In 1996-97 the price was $2.19 per 1% Mn which was reduced to $2.08 per 1% Mn in 1997-98 and again reduced in 1998-99 to $2.04, which is equal to the price of 1995-96.

 

This price of ore is quite high working to about Rs 3,870 per tonne while the price of Indian high grade ore is around Rs 2,200 per tonne.

But the Indian ore has high phos content and is not fancied in the world market. Thanks to the above the Indian ferro producers are able to get their ore at reasonable prices.

The price of manganese alloys around the world has been falling and in fact ore prices are relatively higher than the price of alloy, thus incurring losses for alloy producers in their exports. Most of the ore producers like Australia, South Africa and Gabon are also alloy producers and it is in their interest to keep ore price higher in relation to alloys to discourage or drive away pure alloy producers from the world market.

Thus Elkem, which was a pure alloy producer, found that ore price was driving it out of business and has now got into strategic alliance with BHP, the ore producer.

In fact, for pure alloy producers without ore resources there is less chance of survival in the world market.

Further, the opening of the Chinese and Russian ferro alloy furnaces to the western world producers facilitated tolling arrangements, where low grade domestic ore was substituted by high grade imported ore.

According to Samancors Directors Report for 1997, high grade ore producers were therefore able to use Chinese and CIS alloy production capacity to extend their own alloy capacity without having to make capital investments.

The report says that volumes from conversions exceeded the end user demand and contributed to the poor manganese alloy prices the world over.

What is the scope for an increase in the prices of manganese alloys in 1998-99. Steel production increased in 1997, the increase may be less during 1998 but it did not push up manganese alloy prices and there is little hope for increase in 1998.

This is because there is very large idle capacity in manganese alloy industry both in China and former USSR which could be used for toll conversion.

The European Union confirmed a final dumping duty 58.3 ECUs per tonne on Chinese silico manganese recently which works out to about 14.2 per cent of the CIF price but the provisional dumping duty was higher at 19.6 per cent from September 1997. The Chinese may therefore increase their exports to the EU.

The Japanese have abolished dumping duty on Chinese silico manganese, ranging from 4.5 to 27.2 per cent, from Feb 1998 after keeping it alive for five years.

An orderly marketing arrangement has been arrived at between Japan and China under which China will export 90,000 tonnes of silico manganese to China in 1998. But it is doubtful whether this restraint will be observed.

The price of Chinese silico manganese imported into China by end of 1997 was around $ 470 CIF per tonne, including the dumping duties which is a ridiculous price compared to the cost of producing the alloy.

Now that the dumping duty is abolished the Chinese may get a better price provided they do not drop their prices.With the Chinese now stepping up exports, both to EU and Japan, the price of alloys will increase in 1998 giving some hope for Indian alloy exporters.

The situation in ferro manganese is worse than in silico manganese. The Chinese have sold high carbon ferro manganese to South Korea at prices ranging between $390 to 400 per tonne FOB which is said to be $20 to 30 per tonne less than the cost of production.

At these world prices Indian producers will hardly be able to get their power and ore costs and will have to forget exports, except for Ispat which has captive power.

Two large manganese alloy producers namely Sandur and Universal Ferro are both closed. The entire Raipur belt with nearly 100,000 tonnes capacity is closed, thus bringing the idled manganese capacity to nearly 200,000 tonnes.

Prices in the free market, mostly dictated by producers from West Bengal, have fallen to Rs 18,000 for ferro manganese and Rs 19,000 for silico manganese at which survival is difficult for most. SAIL, which negotiates yearly prices, had paid to suppliers Rs 19,500 for ferro manganese and Rs 22,500 for silico manganese a year back but since then market prices have fallen.

The SAIL tender for 50,000 tonnes of ferro manganese is due to be opened on March 9 and it would be interesting to know what price SAIL will pay to suppliers in 1998-99.

Will it ask the suppliers to supply at current market price including its own subsidiary Maharashtra Electrosmelt.? In that case what would be the impact of it on MEL. Would the unit cut down costs, effect economies and continue to make profits. If it does then it will put more units out of business