1. Global Steel 2004 Dt. 30.1.04, Mumbai Indian Ferro Alloys Industry - The challenges ahead Mr P Roy Mr Gautam Kumar Ferro Alloys & Minerals,Tata Steel

2. 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

3. Global Steel 2004 Dt. 30.1.04, Mumbai Production Trend of Ferro Alloys in India Product1998-991999-002000-012001-022002-03 Mn Alloys357.5369.0446.0442.3540.9 Cr Alloys305.3313.8381.9302.1396.7 FeSi57.256.367.376.281.9 Noble FA1.032.56.57.212.7 ‘000 MT 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

4. 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

5. Global Steel 2004 Dt. 30.1.04, Mumbai World Crude Steel Production CAGR: 1.6% Source: World Steel Dynamics CAGR: 8.8% Million Tonnes From 1990-2002, world production growth averaged 1.6% a year; without China, it would have not grown at all

6. Global Steel 2004 Dt. 30.1.04, Mumbai The Three Growth Phases – the Steel “Snake”(inverted S-Curve) Source: Macquarie Research.

7. Global Steel 2004 Dt. 30.1.04, Mumbai Crude Steel Output Forecast Million Metric Tonnes Steel Production to be fuelled by China’s growth CAGR 2003-10 China: 6.9% World :3.1% Source: WSD

8. Global Steel 2004 Dt. 30.1.04, Mumbai Indian Crude Steel Production Forecast Milllion Metric Tonnes CAGR : 6.2% India not to lag behind in Crude Steel Production

9. Global Steel 2004 Dt. 30.1.04, Mumbai Global Stainless Steel Production ‘000 MT

10. Global Steel 2004 Dt. 30.1.04, Mumbai Indian Mn Alloys Production & Exports ‘000 MT Source:IFAPA

11. Global Steel 2004 Dt. 30.1.04, Mumbai Indian Cr Alloys Production & Exports ‘000 MT Source:IFAPA

12. Global Steel 2004 Dt. 30.1.04, Mumbai Indian Ferro Alloy Production Trends Contd. ‘000 MT Source:IFAPA

13. Global Steel 2004 Dt. 30.1.04, Mumbai Unit Consumption of Manganese ( Kg/t of Steel) Unit Mn Consumption in Crude Steel to decrease world-wide

14. Global Steel 2004 Dt. 30.1.04, Mumbai Mn Alloys Demand Forecast Thousand MT

15. Global Steel 2004 Dt. 30.1.04, Mumbai Mn Alloys Consumption Trends & Forecast for India Thousand MT

16. Global Steel 2004 Dt. 30.1.04, Mumbai Price Trends of Mn Alloys ( US $/t) US Warehouse Source: MBR

17. 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.

18. 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

19. Global Steel 2004 Dt. 30.1.04, Mumbai Power Cost 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 FeSiSiMnFeMnFeCr Sp. Power Consumption (KWH/MT) 8000400029003800 % of Power in total cost655045

20. Global Steel 2004 Dt. 30.1.04, Mumbai Power Tariff India Vs Other Countries CountryPower Tariff (INR/KWH) India2.0 – 4.0 Norway0.85 South Africa1.09 Canada0.63 USA1.14 Brazil1.26 Venezuela0.87

21. 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.

22. 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%)

23. Global Steel 2004 Dt. 30.1.04, Mumbai Mn Ore Production World & India 1997 Thousand MT 2003 Proj. Globally, Ferro Alloys is being controlled by few integrated producers from South Africa & Australia

24. 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

25. Global Steel 2004 Dt. 30.1.04, Mumbai Reductants Contd. Price Trend of ULP Coke (FOB US $/t China) Source: Resource Net

26. 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

27. 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

28. 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. PlantCapacity ‘000 tpy Labour Productivity MT/Man Tornio2601477 Rustenburg415576 Indian Plant Typical 50000278 Indian FA Plants suffer from Economies of scale and low automation levels

29. Global Steel 2004 Dt. 30.1.04, Mumbai Overall Assessment OrePowerReductantFreightLabourOverall China1143211 India2123210 Africa3423113 Scandinavia2311310 CIS2223211 Scale : Lowest : 1 Power is available at global tariffs, India can match the African Countries!

30. 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

31. 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

32. 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.,

33. Global Steel 2004 Dt. 30.1.04, Mumbai Thank You