India’s estimated Rs20,000 crore stainless steel industry, already reeling under the effect of soaring nickel prices in the global market, is now facing shortage of another critical input, chrome ore, with the mineral’s largest producer in the country, Tata Steel Ltd, stopping supply from 1 April.
“We have stopped selling chrome ore because we have invested in facilities for manufacturing ferrochrome,” said Sanjay Choudhry, corporate communications chief at Tata Steel.
Chrome ore is used to make ferrochrome, which goes into the manufacture of stainless steel. India has around 28 ferrochrome manufacturers who make the product for the stainless steel industry and for exports.
A Tata Steel spokesperson said the company had stopped exports of chrome ore, but did not comment on supplies to domestic ferrochrome makers.
“We are against the export of the country’s non-renewable natural resources without adding any value to them,” said Choudhry. “On this basis, we have stopped all our iron ore exports a couple of years ago and the same position exists for chrome ore.”
Tata Steel, which also manufacturers ferrochrome and globaly trades in the product, said that it would continue to sell chrome concentrate, made from low-grade ore.
The floor price of chrome concentrate is $347 (Rs14,227) a tonne, just $3 less than ore prices. Chrome ore (and concentrate) prices have grown 75% on the back of strong Chinese demand; China is the world’s largest consumer of stainless steel.
The increase in price, coupled with high power costs, will hurt ferrochrome manufacturers, analysts say. “Unless a company has captive chrome ore and coal mines to generate power, the ferrochrome business is commercially not viable,” said Manish Joshi, metal analyst at Karvy Consulting Ltd. Power typically constitutes 40-50% of the total cost of production of ferrochrome makers.
On 1 March, the government levied a Rs2,000 surcharge on exports of chrome ore and chrome concentrates.
In the nine months to December 2006, until when data is available, Tata Steel exported 79,500 tonnes of chrome ore, down from 173,950 tonnes in the preceding 12 months. It shipped out 402,459 tonnes of concentrate, compared with 466,650 tonnes previously.
Tata Steel currently has three ferro alloy plants with a total capacity of 140,000 tonnes in Orissa, producing about two lakh tonnes of ferro chrome and five lakh tonnes of chrome concentrates. It has appointed two companies—Ferro Alloys Corp. Ltd and Nav Bharat Ventures Ltd—as conversion agents, to whom it will provide chrome ore to convert to ferrochrome for a fee.
With Tata’s supply out of reach, the Indian Ferro Alloys Producers’ Association, which represents the industry, is now demanding that the government stop export of chrome ore, a rare mineral with limited proven reserves within the country, 90% of which are located in Orissa.
“We must conserve the mineral in the country,” said T.S. Sundaresan, secretary general of the association.
The association has also written to mining, steel and commerce ministries to intervene on its behalf with the state-run Orissa Mining Corp. (OMC) to step up chrome ore production.
Apart from Tata Steel, OMC is the second-biggest chrome producer in the chrome-rich Sukinda valley. It sits on the largest reserve of 6,000 hectares. Tata Steel, which had a reserve of 1,200 hectares, saw its mining area reduced to 406 hectares after a 1998 Supreme Court order based on the Sharma Committee report.
The carved-up areas were parcelled off to four companies for captive consumption, Jindal Stainless Ltd, Ferro Alloys, Balasore Alloys Ltd, and Indian Metals & Ferro Alloys Ltd.
India currently accounts for 2% of the world’s proven chrome reserves, 44 times less than the world’s largest chrome ore producing nation, South Africa, but exports more than that country.
Looking to Orissa
Some stainless steel makers are now pinning their hopes on OMC, which exported 190,000 tonnes of chrome ore and 160,000 tonnes of chrome concentrates in the last financial year. But companies located outside the state fear that Orissa’s policy of making sure 70% of its chrome ore is used within the state will curb supplies to them.
“Because of chrome ore shortage, prices of ferrochrome have risen sharply,” said Dilip Singh Lodha, CEO of Jodhpur-based Stainless India Ltd, which produces 5,000 tonnes of stainless steel a month.
Kolkata-based Rohit Ferro-Tech Ltd, which has two plants in Orissa and West Bengal, complained that it is 30% short of requirement and has stock to last only three months. “Increasingly, it’s going to get tougher to access chrome unless the supply from Orissa goes up,” said Rakesh Aggarwal, president (commercial) at Rohit Ferro-Tech.
Other companies such as SAL Steel are also finding the going tough. A subsidiary of the Sal Steel Group, it had set up a 6,000 tonnes a month ferrochrome plant a year ago in Gujarat’s Kandla port, primarily to take advantage of the 16% excise and 4% tax benefit in the state.
Now, the company, which posted a turnover of Rs275 crore last year, faces uncertain supply. “We have little choice, but to import now,” said Sujal Shah, director (purchase). “The country must ban export of chrome and supply it to domestic consumers instead,” he added.