1. The Indian Ferro Alloy Industry At Cross Roads
Invited Paper
The Indian Ferro Alloy Industry At Cross Roads
Prabhash Gokarn, Tata Steel
1.0 INTRODUCTION TO THE INDIAN FERRO ALLOY INDUSTRY
The Indian Ferro Alloy Industry; a part of the Core Sector under Ministry of Steel; is
engaged in supplying crucial intermediates to the Steel Industry; namely ferroalloys.
The Industry has completed five decades of its existence.
Bulk Ferroalloys (viz. Ferro Manganese, Ferro Silico Manganese, Ferro Silicon, Ferro
Chrome, etc., manufactured through Submerged Arc furnaces), and Noble Ferroalloys
(viz. Ferro Molybdenum, Ferro Vanadium, Ferro Tungsten, Ferro Silico Magnesium,
Ferro Titanium, Ferro Boron, etc. manufactured through the Alumino-Thermic process),
are used in the production of steel (as deoxidants, for refining and for alloying).
Depending upon the process of steel making and the type of steel being made, the
requirement of different ferroalloys varies widely. The principal functions of alloying
steel is for increasing its resistance to corrosion and oxidation, improving hardenability,
tensile strength, high temperature properties (such as creep strength), wear and
abrasion resistance, etc. Since noble ferroalloys
Table 1 Ferro Alloy Capacity in India
constitute a very small proportion of the total, this 2012 estimates
paper is written with a focus on bulk ferroalloys. Ferroalloy Capacity, Mn
TPA
The furnace capacity in the Industry was around
Manganese Alloys 3.16
600 MVA prior to liberalization. Capacity
addition was over 700 MVA before the 11th Five Chrome Alloys 1.69
Year Plan; another 1600 MVA of capacity has Ferro Silicon 0.25
been added during the 11th Five Year Plan. As a Noble Alloys 0.05
result, the furnace capacity has crossed 2,900 Total 5.15
* source - IFAPA
MVA and by tonnage it has crossed 4.65 million
tonnes per annum (Table 1). Thus, ferroalloy manufacturing capacity has increased far
ahead of the growth in ferroalloy requirement by the domestic steel industry, and has
been export driven. About 30% of the capacity is idle due to a combination of poor
planning, poor economics and local problems (labour, electricity, management issues
etc.).
1.1 New Capacities Coming Up
Existing units are expanding and new ferroalloy units coming up (Haldia-West Bengal,
Visakhapatnam-Andhra Pradesh, parts of Chhattisgarh, Orissa and Jharkhand). It is
expected that another 800 MVA to 1000 MVA capacity will be installed and will be in
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2. The Indian Ferro Alloy Industry At Cross Roads
commercial production in the next two to three years. These units are also setting new
capacities for electricity generation and it is expected that about 1000 MVA of CPP
capacity will be added in next two years.
2.0 GLOBAL TRENDS IMPACTING THE INDIAN FERRO ALLOY INDUSTRY
2.1 Global Shift in Stainless Steel and Carbon Steel Production
2.1.1 Stainless Steel production has seen shift
in production from EU and Japan to China. There
has been a steep reduction in stainless steel
production in EU (due to the economic crisis) and
in Japan(partly due to effects of the Tsunami and
due to global recession). This reduction in
stainless steel production in the developed
economies is likely to continue. (Figure 2)
On the other hand stainless steel production in
China and India has seen significant growth: with
over 45% of global stainless steel likely to be
produced in China by 2015 as against 35% today;
India is also likely to see a growth in stainless steel production at ~ 7% in the next 5
years.
2.1.2 Carbon Steel production in China has grown at a CAGR of 12% and in India at
8% since early 2000 and this growth is not
likely to taper off anytime soon. On the other
hand the developed economies of Japan, US,
and EU grew in single digits in the same
period and are now declining. (Figure 3)
Thus the demand for ferroalloys too has
become Asia Centric. Given both China and
India are also large producers of ferroalloys
(China & India - FeCr, Mn alloys, additionally,
China – FeSi, refined alloys and most noble
ferroalloys), and are large exporters to the
rest of the world; the growing consumption at
home has very significant impact on global
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3. The Indian Ferro Alloy Industry At Cross Roads
trade. China has imposed export taxes on ferroalloy exports and has in many cases
become a net importer; India seems to be going the same way.
2.2 Borderless World
2.2.1 Trade Barriers : Globally, trade barriers to imports are decreasing, for example
the decrease on duties on ferro alloy imports has reduced from a peak of 105% in 1993
to 0% in 2008 with duties currently just 5% (Figure 4)
Source : IFAPA
2.2.2 Ocean Freight : With development of shipping infrastructure, ocean freight no
longer remains a significant cost, a step towards making geography, history (Figure 5)
Source : ICDA Kyoto Conference
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4. The Indian Ferro Alloy Industry At Cross Roads
2.3 Reducing Differential in Power Situation in Major Ferroalloy Producing
Countries :
Power is the second most important requirement for bulk ferroalloy production. India
has historically suffered from huge power shortages, inefficient power generation &
transmission and high cost, partly due to cross subsidies and T&D losses (which include
power theft). However, privatization of power generation (both CPPs & IPPs) and power
distribution has brought significant improvement in the Indian power situation in the last
decade.
While India is still at a disadvantage with respect to power cost in South Africa and
Kazakhstan, the gap between China and South Africa on the one hand and India on the
other regarding cost of power and its availability has clearly reduced, making ferroalloy
production in India much more sustainable. The power crisis in South Africa is well
known, while China too has seen acute seasonal shortages of power and rising power
costs.
3.0 OPPORTUNITIES FOR GROWTH OF THE FERRO ALLOY INDUSTRY IN INDIA
The above factors have given the Indian Ferro Alloy Industry immense and very
significant growth opportunities that have led to a very rapid growth in ferro alloy
production and exports in the last decade. (Figure 6).
Source : IFAPA
3.1 Exports from India : China is the world’s largest Manganese Ore producer by
volume and by Manganese content producing 35% of the world’s total production. China
has traditionally been a large exporter of Manganese Alloys.
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5. The Indian Ferro Alloy Industry At Cross Roads
Since late 2009, China has become a net importer of SiMn. Ironically, it was China that
in the past exported the highest volume of SiMn. Also, the steep increase in the
production of stainless steel and carbon steel in China (Figures 2 and 3) means it has
become a significant market for ferroalloys, located at India’s doorstep.
China’s withdrawal from supplying bulk ferro alloys and instead importing them on a
large scale has led to a steep increase in Indian exports of ferro alloys. (Figure 7).
Source IFAPA
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6. The Indian Ferro Alloy Industry At Cross Roads
3.2 Domestic Consumption of Ferroalloys : The increase in production of both
carbon and stainless steel in India over the last decade has led to a significant increase
in the domestic consumption of Ferroalloys in India (Figure 8)
Source IFAPA
The projected growth of over 8% of stainless steel and carbon steel till 2015 augurs well
for the continued growth of ferro alloy production in India (Figure 9A and 9B).
Source : IFAPA 5 year document
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7. The Indian Ferro Alloy Industry At Cross Roads
Source : IFAPA 5 year document
4,0 FERROALLOY INDUSTRY IN INDIA - ADVANTAGES
To summarize, the Indian Ferro Alloy industry has many advantages that have so far
augured well and resulted in the spectacular growth of ferro alloy production in India.
These advantages are :
4.1 Ability to immediately scale up :
1. Large Capacity for Ferroalloys
2. Industry currently operating at 60% of rated capacity
3. New capacities coming up - near ports (Vizag, Haldia).
4.2 Location near high growth regions:
4. Freight advantage in markets such as China, Korea and Japan compared
to Ukraine, Kazakhstan and South Africa
5. Short sailing time, freight advantage
4.3 Cost Advantages over China:
6. Domestically sourced LG & MG Mn Ore available for blending with
imported HG Mn Ore.
7. Power, labour and inland freight costs comparable to China.
4.4 Power availability no longer such a large differentiator:
8. Commissioning of many new power plants including captive ones(CPP)-
may help reduce power availability issues (faced today by SA, China)
(Figure 12)
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8. The Indian Ferro Alloy Industry At Cross Roads
4.5 Backward linkage to Ore:
9. Chrome Ore - Indigenous Chrome ore of high grade quality available to
some players (integrated players like IMFA & Tata Steel, and those based
in Orissa with allocations from OMC)
10. Manganese Ore – Low and medium grade Manganese ores abundantly
available but need to be sweetened by import of high grade/high Mn/Fe
Manganese ores.
4.6 Reductants :
11. Coke : India has been almost totally reliant on imports of coke from China
specially for making Ferro Chrome. High coke prices and the 40% export
tax levied on coke exports by the Chinese government have reduced the
cost competitiveness of the ferro alloy industry in India.
Increasing use of alternative reductants including indigenous coke/coal for
ferro alloy making has helped the industry to mitigate the high cost to
some extent. The slowing GDP growth in China and the global recession
have prompted the Chinese government to withdraw this tax, which will
further help the Indian industry to grow.
4.7 Rising domestic consumption of ferroalloys :
The projected ~8% growth in carbon steel and ~10% growth in stainless
steel production augurs well for the ferroalloy industry in India.
5.0 THEN WHY IS THE INDIAN FERRO ALLOY INDUSTRY AT THE
CROSS ROADS ?
There are however significant developments that can either derail the Indian ferro alloy
growth story or propel it to greater heights. These developments are :
1. Increasing restrictions in the availability of the key raw materials – i.e.
Manganese and Chrome Ores
India has been self sufficient in both Manganese and Chrome Ore and till
recently was even a very significant exporter.
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9. The Indian Ferro Alloy Industry At Cross Roads
However, because of a deficiency in lumpy chrome ore and restrictions in the
free availability of friable chrome ore due to internal policies of the largest
supplier (OMC); imports of chrome ore into India are rising rapidly.
High Grade Manganese ore being in short supply, imports of Manganese ore into
India have risen dramatically. Manganese ore imports into India are at 1.6 Mn
tonnes for Jan-Aug 2012, a rise of 78% from the same period in 2011.
(Figure 10)
Source : IMnI, own estimates
India, like China, is highly dependent on South Africa, Gabon, Australia and
Brazil for sourcing of Manganese ore; these four countries account for ~ 90% of
the imports in 2011.
What is worrying is China’s use of its financial muscle to buy mining assets and
securing exclusive tie ups that may make sourcing of ores costlier for India and
hamper the growth of ferro alloy production.
2. Electricity As explained
earlier, with the increase
in generation of
electricity by public
sector utilities, IPPs
(Independent Power
Projects) and
CPPs(Captive Power
Plants); Power
Shortages which were
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Source : Data Monitor

10. The Indian Ferro Alloy Industry At Cross Roads
the bugbear of power intensive industries in India such as the ferro alloy industry
were mitigated to a large extent and that allowed for the spectacular growth of
this sector(Figure 12).
However, there is likely
to be an impending
power crisis in this
country due to thermal
coal availability issues,
coal linkage issues;
delay in startup of new
coal mines and de-
allocation of coal blocks
due to the “Coal-gate”
scam. The rising cost of
thermal coal globally and
restrictions imposed in Indonesia on thermal coal asset ownership and
preferential allocation agreements too have been affecting the growth of the
power sector.
3. Infrastructure Indian industry has had to grapple with inadequate and crumbling
infrastructure – stretched
and overburdened
roadways, railways and
ports - that raises the
cost of business.
However we are seeing a
rapid improvement in
infrastructure :
a. Roads - India
plans to spend
approximately
Source : Data Monitor
US$70 Billion by
2013 to modernize its roads. India has rebuilt over 18,300 kilometers of 4
or 6-lane highways(including the 4-lane Golden Quadrilateral) inter-
connecting major manufacturing centers and ports. The country is adding
~11 kilometers of new highways daily, and it is likely that we would add
about 600 kilometers of modern highway per month till 2014.
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11. The Indian Ferro Alloy Industry At Cross Roads
b. Railways - India has one of the world's largest railway networks
comprising 115,000 km of track over 65,000 km carrying 2.8 million tons of
freight daily. Despite this the rail network is stretched and requires urgent
expansion and modernization. Improvements in the form of “own your own
wagon”, freight rationalization etc have helped.
c. Sea Ports - India has a long 7500km coastline in which there are 13 major
ports and 187 smaller ports, handling about 560 million tonnes of cargo
(which is growing at a rate of 7.7%) annually. While many major ports are
stretched to capacity, specially Paradip, Vishakapatnam and Haldia, which
handle most of the ferroalloy traffic; upcoming ports like Dhamra in the
east; Pipavav, Adani, Dahej, Mundra and Hazira in the west and
Vallaradam in the south would help reduce traffic congestion.
These improvements in infrastructure will help in the further growth of the
ferroalloy industry. The concern is that these improvements will not happen
rapidly enough.
4. Capital – Lack of capital and high rates of interest on loans have in many ways
stymied the growth of ferroalloy units in the past. With many units having fallen
sick due to poor project planning, execution and economics, Indian banks have
become wary of exposure to this sector.
Like in other sectors, there is increasing foreign investor interest in the ferroalloy
sector. This has come in terms of both investments through the stock exchanges
in listed entities (FIIs) and more recently, in form of direct investments through
JVs (FDI). This increased availability of finance for well planned projects could
result in further rapid expansion of the ferroalloy industry. However, talks of
lowering India’s Credit Rating due to the slow pace of reforms, the negative
sentiments caused by issues such as debate over FDI in Retail and the feeling of
Government inaction could badly affect availability of foreign funds.
5. Lack of Technology Infusion and Innovation While Indians have been past
masters of local innovations (jugaad – Figure 13), systematic industrial research,
(that allowed the US, Japan, the former Soviet Union, South Korea and some
countries in the EU to leapfrog in industry led GDP growth) is severely lacking in
India.
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12. The Indian Ferro Alloy Industry At Cross Roads
Source : TQMS
As a result India risks being continually overshadowed by China and significant
development of new technologies in ferroalloy making bypassing the Indian
ferroalloy industry (Figure 14).
Figure 14 : Some New Technologies in Ferroalloy Making
Source : Metal Junction Conference, 2011
6. Markets – The rapid growth in exports of ferroalloys (Figure 7) led to rapid
growth in ferroalloy production in India(Figure 6) and today exports form a
substantial proportion(~50%) of the market for ferroalloys (Figure 15). Ferroalloys
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13. The Indian Ferro Alloy Industry At Cross Roads
from India were exported to EU, Japan and South Korea. The first exports of
ferroalloys to China (hitherto a major ferroalloy exporter) from India occurred in
2004.
Figure 15 : Rising Proportion of Exports (kT)
47%
52%
32%
1,533
38% 40%
1,555
30%
863
961
28%
960
640
517
1,819
1,740
1,558
1,520
1,460
1,424
1,308
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12
Dom Exp, %Exp
Source : IFAPA
The shift in steel production from the developed nations to China (Figures 2 and
3) has led to China becoming the largest consumer (and in some cases
producer) of ferroalloys. Thus, till recently, China has been the dominant
destination for ferroalloys from India. With slowing Chinese steel growth and a
healthy growth in demand for ferroalloys domestically, it is likely that exports,
currently almost 50% of total production, will fall to a level of 30-35%(level
attained during 2005-08) in 2013. The two factors of concern are :
a) With reduction in export duties in China, the re-emergence of China as a large
exporter of ferroalloys may make it difficult for Indian ferroalloy players to
retain market share in a shrinking global market and
b) The domestic demand for ferroalloys, although growing, will not be able to
take up the slack if exports are hit.
This would mean that the bulk ferroalloy industry could see a period of de-growth
in the short term.
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14. The Indian Ferro Alloy Industry At Cross Roads
Source : IFAPA
7. Rising Ferro Alloy Imports into India
Although India is a large exporter of Ferroalloys due to the uncertain economic
condition in the developed world, many ferro alloy companies (mainly from the
CIS, Russia and Kazakhstan) which restricted themselves to supplying to
customers in the developed world(US, EU, Japan) and to China have started
making in-roads into India.
This has led to a steep rise in imports of ferroalloys (25% CAGR over last 5
years) and does not augur well for the Indian Ferro Alloy industry (Figure 11).
6.0 CONCLUSION
Thus while there are many positives for the ferroalloy industry in India, viz. scalability,
location near high growth markets, cost advantages of labour, technical manpower
domestically available ore and reducing price of reductant blend; the growth in ferroalloy
production is stymied by inadequate infrastructure, rising cost & availability issues in
thermal coal, fear of getting saddled with old technology, and lack of capital. The global
slowing of demand for ferroalloys, the re-emergence of China as a major exporter and
the threat of imports are other factors that the Indian ferroalloy industry would need to
tackle.
Therefore it is very difficult to predict if the ferroalloy industry in India can repeat the
spectacular double digit growth of the last five years. The only certainty is of ferroalloy
prices; which have been volatile and unpredictable in the past – they will remain volatile
and unpredictable in the future: some things will never change!!
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15. The Indian Ferro Alloy Industry At Cross Roads
Acknowledgements
The author (Prabhash Gokarn) would like to thank the management of Tata Steel
for allowing him to write this paper. The views expressed in this paper are his own
and should not be construed as the official opinion of Tata Steel or the prevalent
views within the company.
References & Sources of Data
1. Indian Ferro Alloy Producer’s Association : Annual Reports & Presentations
2. International Manganese Institute and International Chromium Development
Association : Reports & Conference Presentations
3. CRU, Metal Bulletin & TEX Publications : NiCrMo, Bulk FAM, Ferroalloys Market
Track, Tex Report
4. Data Monitor : Trends & Developments in the Indian Power Market (May’10)
5. Prayas Energy Group : Overview of Indian Energy Trends (2009)
6. Tata Quality Management Service Publication on Innovation (2011)
7. Metal Junction Conference : Indian Steel 2011 (Nov’11)
8. iMaritime : India Port Report (Aug’03)
9. Wikipedia and other sources on the internet.
Abbreviations
Fe – Ferro, c/lb – US cents per pound of GDP – Gross Domestic
Mn – Manganese, Chrome Content, Product,
Si – Silicon, LG - low grade, CIS – Confederation of
Cr – Chrome, MG – medium grade, Independent States,
Ch – Charge HG – high grade, US – United States,
MVA – Million Volt Ampere, T&D – Transmission & CAGR – Compounded Annual
MT – Metric Tons, Distribution, Growth Rate,
IPP – Independent Power OMC – Orissa Mining FII – foreign institutional
Plant, Corporation, investment,
CPP -Captive Power Plant, SA – South Africa FDI – foreign direct
EU – European Union, investment
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