Surge in energy costs for ferroalloys in India

News Analysis




Surge in energy costs for ferroalloys in India

Facor Alloys reversed its initial announcement of a temporary shutdown of its Vizianagaram ferrochrome plant, after citing high input and energy costs in the face of low market prices.

Facor Alloys announced on 1 July 2023, that it would temporarily suspend its operations due to power increases. The power distribution company in Andhra Pradesh, DISCOM, implemented a 50% increase in the power tariff for ferroalloys, which pushed the unit price for ferroalloys per kWh up to ₹7.35 (US$0.09). This tariff adjustment resulted in an approximate production cost increase of ₹10,000 (US$121.84) per ton for ferroalloys, equivalent to over 10% of June’s CIF China price for Indian ferrochrome. The participation of the Andhra Pradesh Ferroalloys Producers Association (APFAPA) in discussions with the local government regarding the reduction of the recent power tariff increase influenced Facor to retract their closure announcement and maintain their operations.

Andhra Pradesh, a major state for ferroalloy production in India, houses 21 ferroalloy plants located in the Vizianagaram, Visakha, and Anakapalli districts. The production of ferroalloys is an energy-intensive industry, with power costs accounting for nearly 30% of the total. Currently, total ferroalloy production costs and several plants exceed market prices, putting marginal producers at risk of suspending output. Facor’s Vizianagaram ferrochrome plant is also among the farthest away from the domestic chromium reserves in the Sukinda Valley in Odisha adding higher transport costs compared to its domestic ferrochrome counterparts. 

Around 60% of India's ferrochrome production is specifically aimed at the export market, predominantly catering to Asian stainless steel producers. However, the slower recovery in the Chinese stainless steel industry has had an impact. Year-to-date export data suggests that India is likely to face a second year running of weak ferrochrome exports, which can be attributed to the decreasing global prices and South African ferrochrome producers capturing higher market share in China so far this year.

India ranks as the world's second-largest consumer of stainless steel, and it is projected to experience a growth rate of 7.5% from 2022 to 2025. According to CRISIL, by 2030, India's stainless steel consumption is expected to reach 7Mt, up from 4Mt in 2022. Furthermore, India's anticipated stainless steel production of 23Mt by 2047 will drive an increase in domestic ferrochrome demand over the outlook period.