Indian Ferro Alloys Industry - The challenges ahead Mr P Roy Mr Gautam Kumar Ferro Alloys & Minerals,Tata Steel

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

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

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

World Crude Steel Production Million Tonnes CAGR: 1.6% CAGR: 8.8% Source: World Steel Dynamics From 1990-2002, world production growth averaged 1.6% a year; without China, it would have not grown at all

The Three Growth Phases – the Steel “Snake”(inverted S-Curve) Source: Macquarie Research.

Crude Steel Output Forecast Million Metric Tonnes CAGR 2003-10 China: 6.9% World :3.1% Source: WSD Steel Production to be fuelled by China’s growth

Indian Crude Steel Production Forecast Milllion Metric Tonnes CAGR : 6.2% India not to lag behind in Crude Steel Production

Global Stainless Steel Production ‘000 MT

Indian Mn Alloys Production & Exports ‘000 MT Source:IFAPA

Indian Cr Alloys Production & Exports ‘000 MT Source:IFAPA

Indian Ferro Alloy Production Trends Contd. ‘000 MT Source:IFAPA

Unit Consumption of Manganese (Kg/t of Steel) Unit Mn Consumption in Crude Steel to decrease world-wide

Mn Alloys Demand Forecast Thousand MT

Mn Alloys Consumption Trends & Forecast for India Thousand MT

Price Trends of Mn Alloys ( US $/t) US Warehouse Source: MBR

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.

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

Power Cost FeSi SiMn FeMn FeCr Sp. Power Consumption (KWH/MT) 8000 4000 2900 3800 % of Power in total cost 65 50 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

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

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.

Raw materials Raw materials viz. Mn Ore , Cr Ore Quartz, Fluxes are available in India. However, Indian Mn Ore is predominantly low grade(~45%)

Mn Ore Production World & India Thousand MT 1997 2003 Proj. Globally, Ferro Alloys is being controlled by few integrated producers from South Africa & Australia

High and rising coke costs globally 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

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

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

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

Labour Productivity MT/Man 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 ‘000 tpy Labour Productivity MT/Man Tornio 260 1477 Rustenburg 415 576 Indian Plant Typical 50000 278 Indian FA Plants suffer from Economies of scale and low automation levels

Overall Assessment Ore Power Reductant Freight Labour Overall China 1 4 3 2 11 India 10 Africa 13 Scandinavia CIS Scale : Lowest : 1 Power is available at global tariffs, India can match the African Countries!

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

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

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.,

Thank You