India: Ferro chrome production rises 21% in H1FY'25. Know why?

- Increased stainless steel production lends support

- Higher NPI usage pushes up ferro chrome output

- Declining exports may impact production in near term

Morning Brief: India's ferro chrome production rose 21% y-o-y to 0.85 mnt in the first half of financial year 2024-25 (H1FY'25) as compared to 0.70 mnt in the same period last fiscal (H1FY'24).

What factors drove up production?

Rise in stainless steel production: India's stainless steel (SS) production grew 11% in H1FY'25 to 1.8 mnt, up from 1.62 mnt in H1FY'24. It may be noted that the SS segment is the most important end-user of ferro chrome. Notably, production of stainless steel finished flats and longs increased by 11% and 10% y-o-y, respectively, necessitating increased usage of ferro chrome. "Increased ferro chrome output did help to drive up the stainless steel production figures," corroborated a source.

Rise in demand for superior SS grades: BigMint also sees an increase in production of the higher 400 series of SS which consume more ferro chrome, on the back of the government's increased infra push. Mega projects like Metro Rails and increased automotive production in India are pushing up demand for the 400 series. The minimum percentage of ferro chrome in SS production is 10.5%, but which can expand to 18%, especially in superior SS grades.

Higher NPI usage: In the last few months, there was a higher consumption of nickel pig iron (NPI) in making SS because of a recent drop in prices of the former, which is fully imported. Manufacturing SS using NPI requires more ferro chrome to balance the chemical composition.

That apart, SS producers are also shifting focus to producing more of the 200 series where scrap as a raw material can be replaced by ferro chrome and also because it can be swapped with the 300 series in various end-user applications.

SS scrap imports down: SS scrap imports have dropped amid higher prices. While domestic SS production rose 11% in H1FY'25, imports of SS scrap fell 16% in this period amid tighter supplies from Europe, Korea and Japan because of stricter carbon emission norms. With scrap supplies scant, SS producers turned further towards producing SS using NPI as a raw material where ferro chrome requirement increased to balance the chemical composition, as earlier mentioned.

Indian ferro chrome prices drop y-o-y: As per BigMint's assessment, the average monthly domestic prices of ferro chrome dropped by INR 5,686/t ($67/t) y-o-y to INR 107,756/t ($1,278/t) exw-Jajpur in H1. Bids at chrome ore auctions from OMC and of ferro chrome by Vedanta-FACOR continued to remain volatile and pressured prices downward too. Ferro chrome's price viability also increased stainless steel production.

Grades of chrome ore deteriorating: Grades of chrome ore, the key raw material for making ferro chrome have been deteriorating for some years now. This is dragging down the quality of the end-product, ferro chrome. In a cascading effect, a greater amount of ferro chrome is today required to manufacture one tonne of stainless steel. In FY'24, production of the over 52% chrome ore fines declined to just over 0.5 mnt from over 1 mnt in FY'23.

Exports down amid lower China demand

In a contrarian trend, although ferro chrome production increased in H1, exports declined. Almost 50% of the ferro chrome produced in India is exported with major destinations being China, South Korea, Japan and Indonesia. However, exports declined a significant 39% y-o-y to 0.27 mnt in H1FY'25 against 0.44 mnt in the corresponding period last year.

Overall, China remains the primary importer of ferro chrome from India. The average monthly production of ferro chrome in China was 0.57 mnt in April-August 2023 which went up to 0.75 mnt in the same period this calendar, encouraging the country to import a lesser 0.10 mnt from India in H1FY'25 against 0.19 mnt in H1FY'24.

Outlook

With export demand sluggish, mainly from China, due to declining tender prices from August 2024 onwards, ferro chrome production may see a drop in the near term. Additionally, with domestic prices going down y-o-y in H1, some domestic players are planning to reduce output which may also impact production figures.