With demand for ferro chrome remaining sluggish over the past few months, affecting local rates, domestic manufacturers have resorted to regulating production of the stainless-steel commodity and holding on to their stocks.
The rates, which went as high as Rs 78,000 a tonne during February-March, have now slipped to Rs 70,000. Odisha, the largest producer, accounts for more than 98 per cent of the country's output.
"There is neither international nor local demand. Meanwhile, we cannot sell ferro chrome at the lower rate, as power cost has gone up, too. We can wait till the revival of the rates, and have meanwhile halted plant operation," said an official of Nava Bharat Ventures Ltd, a ferro alloy maker.
Power cost plays a significant role in ferro chrome production, accounting for more than 30 per cent of total cost. Many players who do not have a captive power plant rely on government-supplied electricity to make the alloy mix.
China, the largest buyer of Indian ferro chrome, has curbed export orders because of spurt in domestic supplies. Other buyers, such as Japan and South Korea, have reduced their orders, too, citing higher rates and sluggish demand for the finished product.
"Many international buyers have curbed order quantity to the extent of 30 per cent, citing poor stainless steel output there, and we have regulated our production accordingly," said a ferro chrome producer and exporter based in Odisha.
The situation is likely to improve, as expected by most manufacturers and analysts.
"During January-March, on a few occasions, Indian ferro chrome prices were at premium to international prices due to shortage of domestic chrome ore. The domestic premium over international prices was not sustainable, and, thus, this gap has started narrowing down," said Manish Laddha, director (equity research and strategy) with Ideas 1st Research.
Earlier this moth, the Industrial Development Corporation of Orissa Ltd received bids for its 1,250-tonne high-carbon ferro chrome at Rs 70,100 a tonne, lower than the previous auction price of Rs 71,125 a tonne. Other local producers also confirmed the price fall owing to poor demand.
The producers are upbeat weak chrome ore supply in India would continue to support the rates. The prices will even remain insulated after the fall witnessed in global nickel prices, which too guide ferro chrome prices, because of its use in making stainless steel, they said.
"This time, there may not be any impact because supply problems from South Africa and India will keep supporting the rates," said a senior official with a Bombay Stock Exchange-listed ferro chrome maker.
On the London Metal Exchange, the most active nickel contract slipped to an eight-month low last week on poor China demand concern.
Since the end of 2012, it has shed over eight per cent to trade at around $15,240 a tonne.
CAUSE AND EFFECT
* International as well as local demand for ferro chrome has plunged over the past few months
* China, a major consumer of Indian ferro chrome, has curbed export orders due to a spurt in supplies from Chinese companies
* Ferro chrome prices fell from Rs 78,000 a tonne in February-March to Rs 70,000 a tonne