India: Ferro alloy sector wants govt to review spike in power prices

• Smelters seek RODTEP benefit
  
  
• Green Energy Open Access can ease power woes
  
  
• Fall in exports value in 2021-22 was due to price correction
  
  

Morning Brief: Power constitutes the major portion of the production cost of ferro alloys and rising energy tariffs are a major challenge. A sharp spike has been witnessed in the current financial year. This needs to be reviewed by the government. There is a wide gap between the cost of power generation and distribution, stressed Mahesh Keyal, director, Mortex Group, while speaking recently at Engage 4.0, a SteelMint organized webinar series.

That apart, he rued, there is a huge electricity charges as well, varying from 5-20%, imposed by various state governments. This had a significant impact on Andhra Pradesh, and 38 plants here are on the verge of temporary closure for this very reason.

Increased electricity prices have influenced output as well as pricing in several producing regions.

Additionally, producers want the electricity distribution system's pricing structure to be clear. There is a significant difference between the price the government pays to buy electricity and the price at which it distributes it, Keyal reminded.

Export taxes

The government's Remission of Duties and Taxes on Export Products (RoDTEP) initiative, which was started with the aim of offsetting the taxes and duties paid on exported goods and providing a refund for the same, does not apply to the ferro alloys sector.

However, on the plus side, the government's free trade agreement (FTA) policy means there are no taxes on exports to nations like Vietnam, Japan, South Korea, and the United Arab Emirates (UAE).

The ferro alloys industry wants the RODTEP benefit to be made available for HS Code 7202 and refund of electricity duty on the actual quantity of ferro alloys exported. It is not seeking blanket exemption for the sector. It also wants the interest equalisation scheme - of 3% for manufacturers and 2% for merchant exporters - to be extended to all ferro alloys exporters.

India's ferro alloys exports

Ferro manganese exports were at $250 million (mn) in 2020-21. These rose sharply to $707 mn in 2021-22 but corrected to $539 mn in 2022-23. The growth in value was because of the sharp rise in prices of ferro alloys in this year which corrected in the second quarter of 2022-23. Over 2021-22, there was a decline of 24% in exports of ferro manganese but compared to 2020-21, there was a 100% growth in 2022-23.

Ferro silicon witnessed a sharp growth from $15 mn in 2020-21 to $41 mn in 2021-22 and $70 mn in 2022-23, a sharp 71% growth y-o-y. Earlier, manufacturing happened only in the north-east but now several units have been set up in southern India as well which contributed to the rise in exports.

Silico manganese comprises the largest chunk of the market. From $680 mn in 2020-21 this spurted to $1,523 mn in 2021-22 but corrected to $1,470 mnt in 2022-23, a 4% drop y-o-y. "But considering the drop in the prices of silico manganese in 2022-23, I will rate it as a positive growth, because there was growth in terms of volume," said Keyal.

In ferro chrome, India is a leading player. From $670 mn in 2020-21, levels surged to $1.013mn and fell back to $990 mn in 2022-23, again a minor 2% dip.

China continues to dominate India's export destinations with a 12% share, with the bulk being ferro chrome, followed by the UAE (11%) with a mixed basket and Italy (8%), after overtaking Japan. However, all three showed a y-o-y drop - by 7%, 9% and 8% respectively.

Role of IEX & government

The Indian Energy Exchange (IEX) is a marketplace where one can buy conventional and renewable energy based on their needs. Green energy is becoming increasingly popular since it is more environment-friendly and also due to government encouragement.

Additionally, the government has started the Green Energy Open Access, which aims at consistent power distribution and encourages a switch to green energy by larger homes, businesses, and smaller industries.

The smelters must take advantage of the Green Energy Open Access which will offer two benefits, informed Ravi Seth, assistant vice-president, business development, Indian Energy Exchange (IEX), who was a co-speaker at the webinar. Procure cheaper green power will drive green steel which commands a premium in Europe and other geographies. Using green power in captive mode offers greater flexibility as surcharges are waived. With more renewal power options available today, prices of such power are falling - in some cases solar power tariff bids are at less than INR 2/unit, it is learnt.

Way ahead

Producers are optimistic that despite all constraints, India will continue to be one of the world's leading suppliers of ferro alloys, especially in silico manganese and manganese alloys, and they anticipate a rise in export volumes as well.