Demand set to fast outstrip supply in domestic ferro chrome market – Experts

*Ferro chrome demand expected to reach 3.85 mnt by 2047

*Domestic capacity utilisation has fallen from 90-95% in 2019 to 75%

*Backward integration by China in Indonesia, Africa major threat to global market

While the global energy crisis and geopolitical turbulence has skewed the chrome ore and ferro chrome markets, not unlike the steel and ferro alloys markets in general, increasing domestic demand for ferro chrome requires a substantial enhancement in capacity. Moreover, given the sheer pace at which domestic demand is set to surpass supplies, around 12-13 new chromite mines would need to be operationalised by the mid-2030s, SteelMint learnt during an engaging session at ENGAGE 3.0 with Vivek Nath (General Manager at OMC) and Debraj Mukherjee (Assistant General Manager-National Sales at TSML).

Below are highlights from the session:

Big picture

• Global stainless steel market is set to grow at 3.2% CAGR by 2030, which is the main driver for the global ferro chrome market. India’s stainless steel growth will be much faster at over 6% CAGR
• India’s stainless steel production is set to reach 6.86 mnt by 2030. Production is expected to reach 12.6 mnt by 2040 and over 19 mnt by 2047. The stainless steel segment consumes about 77% of total ferro chrome production.
• The stainless steel industry’s ferro chrome demand is expected to grow to 3.85 mnt in 2047 from 0.79 mnt in 2021. Chrome ore demand is expected to rise to nearly 10 mnt by 2047 from 1.98 mnt in 2021.
• Total domestic demand for ferro chrome is expected to outstrip installed capacity by 2 mnt by 2032 and, therefore, investment in new mines would be required.
• Total demand for chromite ore is expected to outstrip total Environment Clearance (EC) of mine leases of 6.39 mnt by 2036 and 12-13 mines would need to be operationalised to cater to that expected surge in demand

Trade flows

• Out of 3.43 million tonnes (mnt) of ferro chrome exported in H12022, South Africa was the largest supplier with a share of nearly 50% of total volumes, followed by India (at close to 20%), and Kazakhstan (15.7%)
  
• The leading importers in H1 were China (with nearly 30% of world share), followed by Indonesia with over 26.4%, and the EU with over 16%
• For chromite ore, South Africa exported the largest quantity, with more than 90% of it going to China

Domestic scenario

• The major leaseholders of chrome ore are Tata Steel with 2.84 mnt, followed by OMC with 1.91 mnt, and IMFA 0.6 mnt. In total, India has 6.39 mnt of EC capacity
• The production level is around 4 mnt/year, with the major producers being Tata Steel with over 51% of the market share, followed by OMC with 30%
• OMC is producing at a level of 1.1-1.2 mnt, which is slated to rise with new mine projects
• OMC is on the verge of producing lumpy ore from the Bangur mine once it starts; but as of now production is only that of friable fines
• The cost of production of ferro chrome has gone through the roof. About 2.5 t of chrome ore is needed to produce 1 t of ferro chrome. Electricity costs account for 3450-4500 kwh for 1 t of ferro chrome. Prices moving up again to INR 100,000/t provide major relief to producers
  
• Capacity utilisation has fallen from around 90-95% in 2019 to around 75% at present due to high electricity costs as well as surging raw material prices.

Global dynamics, capacity addition

• The key factors that could impact the ferro chrome market globally are resurgence of Covid-19 cases in China; China’s ‘dual carbon’ and overall decarbonisation policy; backward integration by China in Indonesia, Africa and other geographies; uncertainty in South Africa due to power supply shortage, geopolitical tensions and Covid-19 resurgence; and, most importantly, the possibility of ban or export duty on South African chrome ore
• About 1.6 mnt ferro chrome production capacity is in the pipeline globally.
• In India, FACOR is expanding capacity by 75,000 t/year;  TSML is expected to produce almost 100,000 t MORE in 2023 after the acquisition of Rohit FerroTech; IMFA is starting a project of 100,000 t/year in 2022; Jindal’s 100,000 t expansion will start from 2024; Zimbabwe’s Zomasco will start a 72,000 t project; Afrochine will start a huge project of 0.5 mnt; and Tsingshan will commence a 0.7 mnt/year project soon.