Indian Ferro Alloys Industry

- The challenges ahead

Mr P Roy
Mr Gautam Kumar
Ferro Alloys & Minerals,Tata Steel

Global Steel 2004 Dt. 30.1.04, Mumbai

Indian Ferro alloy Industry Status*

• Existing Capacity
– No. of Units : 105
– Total capacity ~ 1300 MVA & 1.64 Million Tonnes
• Working Capacity
– 51 Units
– 1.03 Million Tonnes
• Capacity Utilisation : ~ 62%
• Product range
– Manganese Alloys(50%), Chrome Alloys(35%), Ferro
Silicon(9%) and Noble Alloys (6%)

* as of 2002-03
Global Steel 2004 Dt. 30.1.04, Mumbai
Production Trend of Ferro Alloys in India
‘000 MT
Product 1998-99 1999-00 2000-01 2001-02 2002-03

Mn Alloys 357.5 369.0 446.0 442.3 540.9

Cr Alloys 305.3 313.8 381.9 302.1 396.7

FeSi 57.2 56.3 67.3 76.2 81.9

Noble FA 1.03 2.5 6.5 7.2 12.7

Riding on strong growth for steel demand, Ferro Alloys sector

posted good growth in 2002-03 & 2003-04 and the trend is
expected to continue in 2004-05. The Capacity utilisation has
reached approx. 80% as of now
Global Steel 2004 Dt. 30.1.04, Mumbai
Demand Drivers for Ferro Alloys

• Ferro Alloys are used primarily in Steel making as

deoxidant and alloying agent. Depending upon the
process of steel making and the product quality
envisaged, the requirement of ferro alloys varies
widely
– Demand driver of Ferro Alloys :
• Steel Production ( Crude Steel & Alloy Steels)
• Unit Consumption trends

Global Steel 2004 Dt. 30.1.04, Mumbai

 World Crude Steel Production
1000 Million Tonnes 250

900
CAGR: 1.6%
800 200

700

600 150

500
CAGR: 8.8%
400 100

300

200 Source: World Steel Dynamics 50

100

0 0

P
86

87

91

92
93

95
96

98

99

01

20 2
85

88
89

90

94

97

00

0
03
19

19

19

19
19

19
19

19

19

20

20
19

19
19

19

19

19

20
World China

From 1990-2002, world production growth averaged 1.6%

a year; without China, it would have not grown at all
Global Steel 2004 Dt. 30.1.04, Mumbai
 The Three Growth Phases – the Steel
“Snake”(inverted S-Curve)

World Steel Consumption and GDP Per Capita, 1950-2010

7000 2010

6500
China takes
off!
2005
6000 Phase 3
Asian crisis
5500 2002
$U S /capita ($1995)

Collapse of USSR led to 1997

steel consumption 1994
5000 collapse in Eastern 1989
Europe
Phase 2
4500 1983 1979
Post war expansion to
4000 1970 led to predictions of 1975 1973
seemingless endless 1971
1970
3500 growth

3000
1961
First and second oil prices and subsequent
2500 1954 recessions led to massive light-weighting
Phase 1 of steel-containing products
2000

1500
50 55 60 65 70 75 80 85 90 95 100 105 110 115 120 125 130 135 140 145 150 155 160
kg stee l/capita

Source: Macquarie Research.

Global Steel 2004 Dt. 30.1.04, Mumbai

Crude Steel Output Forecast
Million Metric Tonnes
CAGR 2003-10
1180
China: 6.9% 1019 1017
950
World :3.1% 902
849 851
789

344
251 262
182 215
152
125 129

1999 2000 2001 2002 2003P 2004F 2005F 2010F

World China
Source: WSD

Steel Production to be fuelled by China’s growth

Global Steel 2004 Dt. 30.1.04, Mumbai
Indian Crude Steel Production Forecast

Milllion Metric Tonnes

CAGR : 6.2%
53.90 62.82
51.10
45.90
40.90 48.40
36.40
43.30
38.50
34.30

FY 04 FY 05 FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14

India not to lag behind in Crude Steel Production

Global Steel 2004 Dt. 30.1.04, Mumbai

Global Stainless Steel Production
‘000 MT
18,422

16,209 18,085
14,835

13,081

10,175 11,563
10,413
8,851

7,643

Global Steel 2004 Dt. 30.1.04, Mumbai

 Indian Mn Alloys Production & Exports
‘000 MT

Source:IFAPA

Global Steel 2004 Dt. 30.1.04, Mumbai

 Indian Cr Alloys Production & Exports
‘000 MT
381 396
348
339
313
305 301

238

186
168 161 171
137 158

101 91

1995-96 1997-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03

Production Exports
Source:IFAPA

Global Steel 2004 Dt. 30.1.04, Mumbai

 Indian Ferro Alloy Production Trends Contd.

‘000 MT
79 82
76

57
56 56

12.7
3.7 7.2
1 2.5 4.8

1997-98 1998-99 1999-00 2000-01 2001-02 2002-03

FeSi Noble FA
Source:IFAPA

Global Steel 2004 Dt. 30.1.04, Mumbai

 Unit Consumption of Manganese (Kg/t of Steel)

7 6.9
6.8
6.8
6.58
6.6 6.4
6.4 6.23
6.2 6.2
6.25 6.23 6.2
6
5.8
2000 2001 2002 2003 2004 2005 2006 2007
World China India
Unit Mn Consumption in Crude Steel to decrease world-wide
Global Steel 2004 Dt. 30.1.04, Mumbai
Mn Alloys Demand Forecast

Thousand MT

8025 8604 9886

7343 7245 7621
8558

1962 2286 2380 3065

1666
1219 1392

2000 2001 2002 2003P 2004F 2005F 2010F

Wo rld C hina

Global Steel 2004 Dt. 30.1.04, Mumbai

Mn Alloys Consumption Trends & Forecast for India

Thousand MT

498
361 382
296 325 337
308

2000 2001 2002 2003P 2004F 2005F 2010F

Global Steel 2004 Dt. 30.1.04, Mumbai

Price Trends of Mn Alloys ( US $/t)

US Warehouse

800

600

400

200

HC FeMn SiMn

Source: MBR
Global Steel 2004 Dt. 30.1.04, Mumbai
•India is poised to grow in the Ferro Alloys
production in line with the increased Crude Steel
production
•Chinese FA Producers to focus on the needs of
domestic demand
•Export Potential for Indian FA Producers

•However, Indian Ferro Alloys Business has to

overcome few challenges to grab those
opportunities fully.

Global Steel 2004 Dt. 30.1.04, Mumbai

Indian Ferro Alloy Industry – The Challenges

• High Power Cost

• High & Rising Reductant cost coupled with the low
availability of Reductant
• High Freight costs on account of low priority for
the raw materials requirement of Ferro Alloys by
Railways
• Low Economies of Scale
• No Import duty, CVD & Sales Tax for FA imports
from neighboring countries like Nepal & Bhutan

Global Steel 2004 Dt. 30.1.04, Mumbai

Power Cost

FeSi SiMn FeMn FeCr

Sp. Power Consumption 8000 4000 2900 3800

(KWH/MT)

% of Power in total cost 65 50 45 45

• Power tariff in India is 3-5 times higher than that in the

competing countries

• Hence, globally Ferro Alloys production is situated

geographically in cheaper power locations

Global Steel 2004 Dt. 30.1.04, Mumbai

Power Tariff India Vs Other Countries

Country Power Tariff (INR/KWH)

India 2.0 – 4.0

Norway 0.85

South Africa 1.09

Canada 0.63

USA 1.14

Brazil 1.26

Venezuela 0.87

Global Steel 2004 Dt. 30.1.04, Mumbai

Power Cost
• Though generation cost is not so high in India, tariff borne by
the industry is very high because of cross- subsidisation of
agriculture sector, low plant load factor and sizable T&D losses

• Electricity Duty, which varies widely from state to state also

creates additional burden for Ferro Alloys industry

• Though Power Reforms are on (with the introduction of

Electricity Act, 2003 in India), the impact of this development on
long-term prices generally - and specifically for intensive power
consumer such as ferroalloys producers – is difficult to assess,
since the electricity “market” still seems to be in a state of flux.

Global Steel 2004 Dt. 30.1.04, Mumbai

Raw materials

• Raw materials viz. Mn Ore , Cr Ore Quartz, Fluxes are

available in India.
• However, Indian Mn Ore is predominantly low grade(~45%)

2%
17%

46%

35%

Low Medium High Dioxide

Global Steel 2004 Dt. 30.1.04, Mumbai

Mn Ore Production World & India
Thousand MT

1600 1640

7604 7613

World India World India

1997 2003 Proj.

Globally, Ferro Alloys is being controlled by few integrated

producers from South Africa & Australia

Global Steel 2004 Dt. 30.1.04, Mumbai

Reductants
• Coke is most widely used reductant in Ferro Alloys production. Ferro
Alloys consume roughly 0.6-0.7 tonnes of reductant per tonne of
production
• Coal & Coke of Indian Origin suffers from high ash and volatile matter
content
• Due to non-availability of Low Ash Low Phos Met. Coke, Indian Ferro
Alloy Industry depends on imports
• Stricter environmental controls in many countries have also put merchant
coke batteries under long-term threat of closure.
• Increase demand for Coke in China and curtailment of Coke exports

High and rising coke costs globally

Global Steel 2004 Dt. 30.1.04, Mumbai

Reductants Contd.
Price Trend of ULP Coke (FOB US $/t China)

FOB ($)
250 250

200 180
150 140
117 121
100 92
73 70 84 80 68 70 72
63 63
50

Source: Resource Net

Global Steel 2004 Dt. 30.1.04, Mumbai

Reductants
• Locally available Reductants following the same price
trends, affecting the input costs of Ferro Alloys
• Indian FA Industry is further burdened by
– High level of Import duty on Coke (15%)
– Anti Dumping Duty on low Phos Met coke

Global Steel 2004 Dt. 30.1.04, Mumbai

Logistics Cost

• The industry produces around 1.6 Million Tonnes of ferro

alloys annually. Nearly 2.5-3 tonnes of such raw materials
have to be moved by railway wagons for one tonne of ferro
alloy
• The industry has been experiencing shortage of wagons for
procuring raw materials
• Freight element is very high, thus reducing the
competitiveness of the industry
• Poor Infrastructure facilities at Port also leading to berthing
delays for ships & longer loading time

Global Steel 2004 Dt. 30.1.04, Mumbai

Economies of Scale
• Though labour costs are a small percentage in Ferro Alloy cost
of production, the impact still varies from region to region.

Plant Capacity Labour Productivity

‘000 tpy MT/Man
Tornio 260 1477

Rustenburg 415 576

Indian Plant 50000 278

Typical
• Indian FA Plants suffer from Economies of scale and low
automation levels

Global Steel 2004 Dt. 30.1.04, Mumbai

 Overall Assessment

Ore Power Reductant Freight Labour Overall

China 1 1 4 3 2 11

India 2 1 2 3 2 10

Africa 3 4 2 3 1 13

Scandinavia 2 3 1 1 3 10

CIS 2 2 2 3 2 11

Scale :
Power is available at global tariffs, India can match the
Lowest : 1
African Countries!
Global Steel 2004 Dt. 30.1.04, Mumbai
How to Overcome the Challenges

• Power Cost
– Power be made available at internationally
comparable tariff to give a level playing field to
Indian FA Industry with International players
– The Power tariff should be of Long-term
arrangement
– Cross subsidies to other industries must be
removed and Ferro Alloy Industry should be treated
separately and a separate tariff should be fixed

Global Steel 2004 Dt. 30.1.04, Mumbai

How to Overcome the Challenges

• Raw materials
– To increase exploration efforts for evaluation of
minerals reserves
– To step up R&D activity to develop techno-
commercially feasible techniques of low grade Ore
beneficiation
– By waiving Customs duty, Addl. Duty on Ores used in
production of Noble Ferro Alloys
– By Reducing Customs Duty on Coke from 15% to 5%
– By removing ADD on low ash low phos Met. Coke
imports

Global Steel 2004 Dt. 30.1.04, Mumbai

Indian Ferro Alloy Industry – The Way Ahead

• Further
– Ferro Alloy Industry should be given special status,
and priority should be accorded for raw material
movement
– To reduce the rail freight on movement of raw
materials for Ferro Alloys by classifying them as low
freight category
– To impose counter veiling duty on Ferro Alloys
imported from neighboring countries like Bhutan,
Nepal etc.,

Global Steel 2004 Dt. 30.1.04, Mumbai

Thank You

Global Steel 2004 Dt. 30.1.04, Mumbai