Steel growth in China, which has seen a very significant year on year growth in steel production since 2000 till now, is likely to taper off to single digits. India will see significant growth in steel production reminiscent of the China story between 2000-2009.
China is one of the world’s largest Mn alloy producers and has traditionally been a large exporter of Mn alloys. However, since Q3 2009, Chinese turned a net importer of SiMn and is likely to remain so.
The two reasons for this are a) Demand for Mn alloys from China’s own rapidly growing steel industry and b) Decreased Competitiveness of China due to 1. Increasing cost of operations – power tariff similar to India, increased labour, freight, environmental costs; 2. Regional & seasonal power shortages and 3. Increased proportion of Mn Ore imports. Decreased Chinese Competitiveness has resulted in sharp reduction in bulk Mn alloy exports from China (specially SiMn)
There is already a significant growth opportunity for Indian players due to the projected steel growth in India. Apart from the domestic opportunity , there is an opportunity for Indian Mn alloy producers to :Replace China in the international Silico Manganese trade.Explore market opportunities in Manganese Alloys in China.
It would not be improper therefore to try and analyse what led to such a significant rise of India as a FeCr producing power? India has seen a significant rise in its GDP growth during this decade and has therefore led to increased prosperity and higher spending power for the people. The SS production has increased keeping in step with the growing demand and need for SS products in India.Asia has become the nerve centre for SS production thanks to the significant increase in SS prodn in China. With China turning into a significant importer of FeCr, India has been well-placed to grab this advantage. Indian govt’s policy of restricting exports of chrome ore has provided the right business environment for FeCr producers to get more ore and therefore increase production.
Silico Manganese production has grown significantly in India due to a) requirement of lower grades of mn ore that can be sourced locally and b) high domestic demand fuelled by the steel industry, specifically by growth in long products.
The advantages that India enjoys are :a) Large Capacity for Ferro AlloysIndustry currently operating at 60% of rated capacityNew capacities coming up. Capacities coming up near ports (Vizag, Haldia).Freight advantage in markets such as China, Korea & Japan compared to Ukraine or South Africac) Domestically sourced LG & MG Mn Ore available for blending with imported HG Mn Ore. Higher indigenous ore availability compared to Chinese producers – lower cost specially to players with ore linkages. Comparable power cost (around 7 c/kWh), labour & inland freight costs to China.
Key success factors for Indian Mn alloy industry include a) government support in free imports of HG Mn Ores & LAM Coke. b) availability of power and comparative power cost.
c) Increasing efficiency of operations – large furnaces, capacities with CPP and / or coal and ore linkages d) Infrastructure development – ports and logistics to allow large imports of ore and exports of ferro alloy, inland transport by rail & road etc.e) A regulatory framework that supports ferro alloy exports that is necessary for India to consolidate position as a major ferro alloy exporter.
Potential of Ferro Alloys in India (presented to CAPEXIL)
POTENTIAL OF FERRO ALLOYS - INDIA Presentation Made To The Ferro Alloys Panel CAPXEIL (formerly The Chemical & Allied Product Export Council) February 2012 Prabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel
Presentation Structure Introduction To Ferro Alloys Ferro Alloy Capacity – India Ferro Alloy Demand Drivers China Factor In Ferro Alloys India Powerhouse In Ferro Alloys Power Situation Globally Advantage India Key Success Factors For India As A Power House In Ferro Alloys2 Prabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel
INTRODUCTION TO FERROALLOYSPrabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel
INTRODUCTION TO FERRO ALLOYS Principal Functions of Alloying : Increases Corrosion / Oxidation Resistance, Increases Hardenability, Tensile Strength Wear & Abrasion Resistance Increases High Temperature Strength, Creep, Strength, etc. Ferro Alloy Industry : Part of Core Sector under Ministry of Steel Supplying Crucial Intermediates to Steel Industry Completed Five Decades Bulk & Noble Ferroalloys used in Steel Production as De-Oxidant Alloying Agent4 Prabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel
DEMAND DRIVERS OF FERRO ALLOYS5 Prabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel
DEMAND DRIVERS OF 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 Drivers of Ferro Alloys: Crude Steel Production Alloy Steel Production Stainless Steel Production6 Prabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel
INDIA CAPACITIES 32% Capacity (in Million Tonnes) 5%1% Manganese Alloys 2.50 62% Ferro Silicon 0.20 Chrome Alloys 1.30 Noble Ferro Alloys 0.04 FeSi Mn Alloys Noble Fe Alloys FeCr TOTAL 4.048
REGION-WISE CAPACITIESBULK FERRO ALLOYS – CAPACITY in MVA EAST WEST CENTRAL NORTH SOUTH INDIA MANGANESE ALLOYS 875 150 317 7 225 1574 FERRO SILICON 119 - - 6 71 196 CHROME ALLOYS 695 24 42 13 106 880 TOTAL 1689 174 359 26 402 2650 64% 7% 14% 1% 15% Ferro Alloy Industry is concemtrated in Eastern India : Near major resources – Mn Ore & Chrome Ore Near major Steel Plants Near areas of cheap, available power9 Prabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel
BRICS – WILL DRIVE GROWTH IN STEEL & FERRO ALLOYS11 Prabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel
Demand Driver – Steel Production IndiaChina , at “j” curve around 2000, likely to show tapering growth (2012-15).India has reached the “j” curve, a will grow at double digits (2012-15).India & China will remain high growth markets for Ferro Alloys 12 Prabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel
CHINA FACTOR IN FERROALLOYSPrabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel
China – Manganese AlloysPrabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel
Chinese Manganese Alloy Industry China is the world’s largest Mn Ore producer by volume and by Mn Content producing 35% of the world’s total production. China has traditionally been a large exporter of Mn Alloys. The Change sInce 2009 : Mn Alloy Supply (World, without China) China became a net importer of Mn alloys for the first time in August 2009. China has become a net importer of SiMn, ironically, in past years SiMn was the Mn alloy commodity that China exported the highest volume of. China continued to export more FeMn than it imported, (both Ref FeMn and HC FeMn). CY 2010 15 Prabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel
Decreasing Competitiveness of China Power Tariff Increases Apart from the increased (6.25-7.5 c/kWh) internal demand for Mn Alloys due to the rapid Regional & Seasonal Increased Environmental Power Shortages increase in steel production, Costs North in Winter, Decreased which is limiting Chinese East/South in Summer Competitiveness exports, Decreased of China in Mn Chinese Competitiveness Alloys has resulted in sharp Cost Increases : Increased Proportion of reduction in bulk Mn alloy Freight, Labour & Imported Mn Ore exports from China Regulatory Costs (specially SiMn) Source : ERAMET, Metals Expert16 Prabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel
Opportunity For India ? Mn Alloy Supply (World, without China) Mn Alloy Supply (World, without China) 2009 2011 Opportunity for India to : a) Replace China in the international Silico Manganese trade. b) Explore market opportunities in Manganese Alloys in China. This is apart from the opportunity presented by the steel growth in India Source : ERAMET,17 Prabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel
China – Chrome AlloysPrabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel
The Changing Chrome Relationship BetweenIndia and China Till 2000 2001 to 2004 2005 to current The possible future Stainless Steel China reaching half Emergence of China as Dominance of China in Increased Dominance of million MT production player of significance global Stainless Steel China, Emergence of India in global Stainless Steel production : high growth in Stainless Steel production Increased production of Ferro Chrome No Ferro Chrome import by China starts importing Ferro Chrome in China and Higher production China Ferro Chrome : 1st time India. consumption & export of import rom India Quantum jump in India’s Ferro Chrome in India. share in China’s import China secures Chrome Ore Chrome Ore India’s production reached Restriction of Ore supply supplies through equity India’s production reaches stakes in Zimbabwe, South 2 million MT 3 million MT with one third from India . China shifted to exported to China supply from other countries Africa etc. Further consolidation : Cr Ore - FeCr - Stainless Steel19 Prabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel
INDIA POWERHOUSE IN FERRO ALLOYSPrabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel
CHROME - The Big 3 : SA, Kazakh, India SA and Kazakh with the world’s biggest reserves of chrome ore is struggling to maintain its supremacy in FeCr production. FeCr production in SA is clearly affected by the problems of power. Despite producing almost half the world’s Ferro chrome, its real growth has only been 12% during the current decade Kazakhstan is probably feeling threatened because it exports almost 40% of its material to China. Hence it is trying to invest into South African reserves and grow in strength Indian story has been quite significant in this context. With government support by way of restriction of chrome ore exports and captive power plants to reduce its dependence on power, the Indian ferro-chrome production has increased by a huge 98% during the current decade.21 Prabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel
India-A FeCr Production Power-house? Significant rise in its GDP growth and increased prosperity The SS production has increased keeping in step with the growing demand and need for SS products in India. Asia- the nerve centre for SS production. India well- placed to grab this advantage. Indian govt’s policy of restricting exports of chrome ore has provided the right business environment for FeCr producers.22 Prabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel
Ferro Chrome : India catching up with China 1,6001,576 1,600 1,5001,476 1,450 1,450 1,500 1,406 1,350 1,400 1,300 1,156 000 MT 1,200 1,041 1,100 1,000 900 800 2009 2010 2011 2012 2013 China India China turned a net importer of HC Ferro Chrome from India since 2002, with a quantum jump in HC FeCr imports in last 2 years. Significant increase in FeCr production within India forecast, India will catch up with China by 2013.23 Prabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel
Indian Manganese Alloy Production 995 1,200 In ‘000 845* 859 1,000 MT 738 565 800 467 405 380 378 371 600 281 256 251 232 400 200 0 HC Ferro Manganese Silico Manganese Production of Ferro Manganese has grown @ CAGR of 10% Production of Silico Manganese has grown @ CAGR of 17% Around 25% -30% is exported – is there a potential to increase this ?24 Prabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel
POWER SITUATIONGLOBALLYPrabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel
Overall Cost Of Power Increasing - Power Differentials falling Power is the 2nd most important requirement for FeCr production. India is still at a disadvantage compared to the power cost in SA and Kazakhstan. However, the gap between cost of power in SA and India has clearly reduced bridging the gap between production costs and making FeCr production in India very much sustainable.26 Prabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel
POWER Low Power Generation Cost in India - Comparable to the World High Power Tariff due to : - Low Plant Load Factor – inefficient generation -High Transmission & Distribution Losses - inefficient transmission -Cross Subsidies to Agriculture State wise variation in Electricity : availability, power tariff, power quality27 Prabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel
POWER Positive Impact of On-going Power Reforms : - Captive Power Plants – advantage of an alternate revenue stream. - Power Wheeling - - New Generation Capacities being set up - - Alternative Energy Sources apart from thermal : gas based, wind, nuclear CAPACITY ADDITIONS IN NEXT TWO YEARS (ESTIMATED) CAPTIVE POWER PLANTS (13 UNITS) 1000 MW28 Prabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel
POWER CRISIS IN CHINAPositive Impact On Indian Ferro Alloy Producers of Power Crisis In China :China biggest electricity producer & consumer in the worldChina has been facing regional power shortages since 2002(Liaoning, Jiangsu, Zhejiang, Guangdong provinces in particular)Lack of long-distance power transmission capacity – no national grid, 6regional gridsChina needs to add new annual capacity of 48GW in a steady state growthmodelHigh dependence of China on Hydro-Power(30%)Northern areas experience shortages in winter due to increased heatingdemand & problems with coal deliveries.Eastern & southern areas are prone to shortages in late spring/early summeras temperatures & air-conditioning demand rise, while reservoir levels &hydro-electric output falls.China power tariff increases – competitiveness of India increases.Opportunity of India to export ferro alloys in markets where China is till nowdominent.29 Prabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel
– SOUTH AFRICA POWER the State owned utility of South Africa, ESKOM.Electricity supply dominated byESKOM has a capacity of 35 200 MW from 20 power plants.ESKOM generates around 2/3rd of the electricity produced in the whole of AfricaEskom provides about 95% of South Africas electrical power Generation primarily coal-fired, One nuclear power station at Koeberg, Two gas turbinefacilities, Two conventional hydroelectric plants, and Two hydroelectric pumped-storagestations. In 2008 South African electricity demand exceeded supply capacity.Eskom increased tariff by about 30% and 20% recently, More importantly, all industries facepower restrictions – including ferroalloy industry; limiting ability of South Africans to expandmarket share temporarily.Opportunity of India to consolidate position in global ferro alloystrade & seize the value-buildup opportunity!!30 Prabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel
ADVANTAGE INDIAPrabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel
Advantage India * Large Capacity for Ferro Alloys Ability to * Industry currently operating at 60% of rated capacity immediately * New capacities coming up. Capacities coming up near scale up ports (Vizag, Haldia). Location near •Freight advantage in markets such as China, Korea & high growth Japan compared to Ukraine or South Africa regions • No seasonal effects •Short sailing time, freight advantage * Domestically sourced LG & MG Mn Ore available for Cost blending with imported HG Mn Ore. Higher indigenous Advantage ore availability compared to Chinese producers. over China * Comparable power, labour & inland freight costs to China.32
KEY SUCCESS FACTORS FORINDIA AS A POWER HOUSE INFERRO ALLOYSPrabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel
Key Success Factors For Indian Ferro Alloy Industry Action Required / Changes Taking Key Issues Description Place • India has limited availability • Continue to allow free import of of Medium to Low Grade Mn Availability of HG Manganese Ore Ores High Grade Mn • Indian Ore, sweetened with HG • Indigenous Manganese Ore Ore Mn Ore suitable for SiMn grade & quantity better than production. with China • Import of low ash coking coal for Coking Coal & Ferro Alloy & BF Coke making in • Indian coal has high ash LAM Coke India • Exposure to availability & availability & • Blending indigenous cokes with price of LAM coke from China cost imported LAM coke for economic considerations • Indian average power tariff at • Power Sector reforms in place - Power similar level to China. allowing for Captive Power Plants Availability & • Power shortages in summer & Power Wheeling. Power Cost in Eastern India (hub of Ferro • Increase grid power generation. Alloy production) 34 Prabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel
Key Success Factors For Indian Ferro Alloy Industry Action Required / Changes Taking Key Issues Description Place • Furnaces sizes start from • Consolidation taking place with 4MVA significant capacity expansion bySmall capacities, • Almost 15%-20% capacity key players. inefficient unlikely to revive. • Increasingly, capacities with operations • Global furnaces moving to Captive Power Plants, Coal and higher sizes. ore linkages. • Inadequate roads, railway • Encourage FDI for rapid Infrastructural network capacity & ports for infrastructure development; Bottlenecks handling large scale ore Special Economic Zones imports & ferro alloy exports • Special Freight Corridors How Can CAPXEIL Help ?35 Prabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel