Established in 1961 in the mineral-rich state of Odisha, Indian Metals & Ferro Alloys (IMFA) is one of the largest producers of ferro chrome (FeCr) in the country with a 190-MVA installed furnace capacity backed by 262.5 MW of captive power generation (including 4.5 MW of solar power) and extensive chrome ore mining tracts. Recognised globally as a cost-competitive producer, IMFA has, over the years, developed relationships with multinationals like POSCO of South Korea, Marubeni Corporation and Nisshin Steel of Japan as well as leading stainless steel producers in China and Taiwan. In India, Jindal Stainless and Shri Balaji Industrial Products Ltd are its leading customers. Ahead of the annual Indian Ferro Alloy Producers Association (IFAPA) conference starting September 12, 2019, Steel360 catches up with D.K. Mohanty, Senior Vice-President & Head, Ferro Alloys Business Unit of IMFA. He dwells on emerging trends and ongoing global trade tussles that could deeply impact the chrome industry. Excerpts from an interview:
Domestic ferro chrome prices have tanked in line with sagging stainless steel demand. What is the short-term projection like for domestic prices?
Three major raw materials – chrome ore, electricity prices and reductants – determine the production cost. The reductant, i.e., low-ash low-phosphorous coke, is not available in India and we have to depend on imports. So, both availability and price would have a significant bearing on production costs. Also, apart from raw materials, logistics and labour contribute to the overall cost. However, today both the floor and ceiling prices for ferro chrome are set by China and we are more or less a price follower. Domestic prices also follow Chinese prices with a certain time lead/lag.
To put it bluntly, current prices are unviable for domestic manufacturers. Present HC ferro chrome prices range between INR 63,000-INR 64,000 per tonne. In the short term, I perceive an upward correction of around INR 5,000 per tonne. Actually, any price less than INR 75,000 per tonne is unviable for manufacturers.
At current price points, it is difficult for many small players to sustain. Further integration along the value chain would be required. Also, China, which sets the floor/ceiling prices for ferro chrome, is also quite high on the cost curve, so it is inevitable that prices will go up.
How have global trade conflicts and foreign exchange rates influenced the chrome industry, especially with respect to China?
Today we operate in a global market so any unjustified protectionism will wreak havoc on the world economy. US President Donald Trump announced on August 1 that he would impose a 10% tariff on a final USD300 billion worth of Chinese imports, prompting China to halt purchases of US agricultural products. Such tit-for-tat measures won’t work for the benefit of anyone concerned. Surely, the global trade in chrome ore and alloys will be severely hit if such trade conflicts persist.
But it is instructive to recall that back in 2015 we had witnessed similar trade tensions and the market had been badly affected. Therefore, it is my personal belief that the tensions would subside after a time and the major trading nations would come to an amicable agreement. However, when that might happen is anybody’s guess. Global think tanks and economists feel a general trade agreement doesn’t look likely before 2020.
Will devaluation of the Chinese yuan restrict China’s ferro chrome imports from India? Will Indian exports pick up by end of this year?
That Indian exports to China have fallen somewhat can’t be a serious cause for concern. In fact, compared to South Africa, India’s share in China’s ferro chrome import basket is significantly lower. However, alloys manufacturers in China and elsewhere depend on a perfect blend of grades and, therefore, imports of varying grades from different sources are essential to sustain China’s productive volume. Also, China won’t like putting all eggs in one basket and so it will keep the option of imports from all channels open.
What kind of a power tariff structure is necessary for Indian ferro alloys manufacturers to retain a competitive edge in the global market?
We can’t change the power tariff structure overnight and manufacturers have to build additional capacities and enhance operational efficiency to retain their competitive edge. The structure of the Indian industry is such that while some have access to captive mines and power, others have to source these from primary sources.
Also, we can’t expect to have power as cheap as, say, that is available in Kazakhstan or South Africa, or China. So, certain impediments can’t be removed all at once.
What is the estimated growth trajectory of the Indian stainless steel market? How will it boost ferro chrome demand and prices?
India has emerged as the next stainless steel powerhouse after China, with production touching close to 4 million tonne per annum (MTPA) and capacity crossing 5 MTPA. With increasing thrust on industrialisation, urbanisation and hike in per capita income, both production and demand are set to soar in the days to come. India is the world’s second largest stainless steel producer after China and although production levels won’t reach anywhere close to what the Chinese stainless steel industry has achieved – which contributes around 50% of world production – the Indian stainless steel industry will witness steady growth in the coming days.
That, of course, is music to the ears of domestic ferro chrome manufacturers who already enjoy the advantage of catering to the huge South East Asian stainless steel market that comprises around 75% of the global total. Today, while about 50% of the ferro chrome produced in the country is exported, in the coming days, with the growth of the stainless steel industry in India, export volumes may come down. However, it would be naïve to assume that the production volumes in the chrome industry would expand in sync with the stainless steel industry. Still, we can expect a period of sustained growth with domestic demand rising at a steady rate.