Mumbai: India’s biggest manganese ore producer Moil Ltd is considering a three-way joint venture (JV) with the country’s two biggest state-owned steel makers—Steel Authority of India Ltd (SAIL) and Rashtriya Ispat Nigam Ltd (RINL)—to set up a ferro alloy plant at Bhilai in the power-surplus state of Chhattisgarh.

The decision follows a plan to scrap a proposed plant in Andhra Pradesh under a JV with RINL after the state government failed to offer assured power supply, said two persons involved in the discussions. Both declined to be named pending an announcement of the plans.

“We are planning to scrap the JV in Andhra Pradesh and set up a new ferro alloy plant at Bhilai with RINL and SAIL but talks are at a very nascent stage," said one of the two persons. While the plans haven’t been firmed up yet, the plant in Bhilai may have a capacity of up to 150,000 tonnes with an investment of close to 500 crore, he said. Output from the plant will be used to meet incremental demand from SAIL and RINL, the person said.

Emails sent to SAIL, RINL and Moil remained unanswered.

Ferro alloys are alloys of iron used in steel making as an anti-corrosive agent. To produce a tonne of steel, 25kg of ferro alloy is typically required. India, with a current steel capacity of 80 million tonnes (mt), consumes up to 2 mt of ferro alloys annually.

In 2009, Moil had signed two separate JV agreements with SAIL and RINL to set up ferro alloy units at Bhilai and in Vizianagaram district of Andhra Pradesh. While the plant with SAIL had a proposed capacity of 106,000 tonnes per annum (tpa), the JV with RINL was planned with a capacity of 57,000 tpa. Production of ferro alloys is a highly power-intensive process and requires almost 4,000 units of electricity to produce one tonne of ferro alloy. Experts say setting up of a ferro alloy plant in a power-starved state or without a captive source usually turns out to be unviable.

It makes sense for ferro alloy units, which are energy intensive, to be based in power-surplus states like Chhattisgarh, said Debasish Mishra, senior director at international consultancy firm Deloitte Touche Tohmatsu India Pvt. Ltd.

Being coal-rich and having a supportive industrial policy, Chhattisgarh has attracted many independent power producers. As a consequence, parts of the western grid have become power-surplus, helping the government charge competitive tariffs as well. In contrast, Andhra Pradesh and other states in the south remain power starved.

According to Mishra, at a consumption rate of 4,000 units of electricity per tonne, it could cost up to 28,000 to produce a tonne of ferro alloy in a state like Andhra Pradesh. In Chhattisgarh, it could be much lower at 16,000 per tonne.

Giriraj Daga, senior analyst with Nirmal Bang Securities Pvt. Ltd, said the current price of ferro alloys in India are in the range of 50,000 to 51,000 per tonne and has been more or less flat for the last one year.

SAIL has an annual ferro alloy requirement of 250,000 tonnes, out of which 100,000 tonnes is supplied by its own plant in Chandrapur, Maharashtra. The rest is sourced from various small manufacturers. RINL, which consumes close to 150,000 tonnes of ferro alloy annually, meets its entire requirement from the market. Once the Bhilai plant under the SAIL-RINL-Moil JV is in place, both SAIL and RINL will be less reliant on open market purchases. “The demand from both the companies is expected to increase substantially and Moil had been eyeing to corner this increase in demand through its forward integration plans since 2009, but has so far been a laggard," said Neha Majithia, an analyst with securities house Microsec Capital Ltd. “The two ferro alloy plants were the first forward integration initiatives by Moil and could have directly added to the company’s bottomline as ferro alloys are high-margin products," Majithia added.Moil is India’s biggest manganese ore miner with a 50% market share and has mines in Maharashtra and Madhya Pradesh with a current capacity of 1.15 million tonnes per annum.

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