1. POTENTIAL OF FERRO ALLOYS- INDIA Presentation Made To The Ferro Alloys Panel CAPXEIL (formerly The Chemical & Allied Product Export Council)February 2012 Prabhash GokarnPresentation to CAPXEIL Ferro Alloy Panel

2. Presentation Structure Introduction To Ferro Alloys Ferro Alloy Capacity India Ferro Alloy Demand Drivers China Factor In Ferro Alloys India Powerhouse In Ferro Alloys Power Situation Globally Advantage India Key Success Factors For India As A PowerHouse In Ferro Alloys2 Prabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel 3. INTRODUCTION TO FERROALLOYSPrabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel 4. INTRODUCTION TO FERRO ALLOYS Principal Functions of Alloying : Increases Corrosion / Oxidation Resistance, Increases Hardenability, Tensile Strength Wear & AbrasionResistance Increases High Temperature Strength, Creep, Strength, etc. Ferro Alloy Industry : Part of Core Sector under Ministry of Steel Supplying Crucial Intermediates to Steel Industry Completed Five Decades Bulk & Noble Ferroalloys used in Steel Production as De-Oxidant Alloying Agent4Prabhash GokarnPresentation to CAPXEIL Ferro Alloy Panel 5. DEMAND DRIVERS OF FERROALLOYS5Prabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel 6. DEMAND DRIVERS OF FERROALLOYSFerro Alloys are used primarily in steel making asdeoxidant and alloying agent.Depending upon the process of steel making and the product quality envisaged, the requirement of Ferro Alloys varies widely. Demand Drivers of Ferro Alloys: Crude Steel Production Alloy Steel Production Stainless Steel Production6Prabhash GokarnPresentation to CAPXEIL Ferro Alloy Panel 7. FERRO ALLOY CAPACITY -INDIAPrabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel 8. INDIA CAPACITIES32% Capacity (in Million Tonnes)5%1% Manganese Alloys 2.50 62% Ferro Silicon0.20 Chrome Alloys1.30 Noble Ferro Alloys 0.04 FeSi Mn Alloys Noble Fe Alloys FeCr TOTAL4.048 9. REGION-WISE CAPACITIESBULK FERRO ALLOYS CAPACITY in MVA EASTWEST CENTRAL NORTH SOUTH INDIA MANGANESE ALLOYS875150317 7 2251574 FERRO SILICON 119 --671 196 CHROME ALLOYS 695 24 42 13106 880 TOTAL1689 17435926402265064%7% 14%1% 15% Ferro Alloy Industry is concemtrated in Eastern India : Near major resources Mn Ore & Chrome Ore Near major Steel Plants Near areas of cheap, available power9 Prabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel 10. FERRO ALLOY DEMANDDRIVERSPrabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel 11. BRICS WILL DRIVE GROWTH IN STEEL & FERRO ALLOYS11 Prabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel 12. Demand Driver Steel Production IndiaChina , at j curve around 2000, likely to show tapering growth (2012-15).India has reached the j curve, a will grow at double digits (2012-15).India & China will remain high growth markets for Ferro Alloys 12 Prabhash GokarnPresentation to CAPXEIL Ferro Alloy Panel 13. CHINA FACTOR IN FERROALLOYSPrabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel 14. China Manganese AlloysPrabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel 15. Chinese Manganese Alloy Industry China is the worlds largest Mn Ore producer by volume and by Mn Content producing 35% of the worlds total production. China has traditionally been a large exporter of Mn Alloys. The Change sInce 2009 :Mn Alloy Supply (World, without China) China became a net importer of Mn alloys for the first time in August 2009. China has become a net importer of SiMn, ironically, in past years SiMn was the Mn alloy commodity that China exported the highest volume of. China continued to export more FeMn than it imported, (both Ref FeMn and HC FeMn).CY 2010 15 Prabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel 16. Decreasing Competitiveness of ChinaPower Tariff Increases Apart from the increased(6.25-7.5 c/kWh) internal demand for Mn Alloys due to the rapidRegional & SeasonalIncreased EnvironmentalPower Shortages increase in steel production, Costs North in Winter, Decreased which is limiting Chinese East/South in SummerCompetitiveness exports, Decreasedof China in Mn Chinese CompetitivenessAlloys has resulted in sharp Cost Increases :Increased Proportion of reduction in bulk Mn alloyFreight, Labour &Imported Mn Ore exports from ChinaRegulatory Costs (specially SiMn) Source : ERAMET, Metals Expert16Prabhash GokarnPresentation to CAPXEIL Ferro Alloy Panel 17. Opportunity For India ?Mn Alloy Supply (World, without China) Mn Alloy Supply (World, without China) 20092011 Opportunity for India to : a) Replace China in the international Silico Manganese trade. b) Explore market opportunities in Manganese Alloys in China. This is apart from the opportunity presented by the steel growth in India Source : ERAMET,17Prabhash GokarnPresentation to CAPXEIL Ferro Alloy Panel 18. China Chrome AlloysPrabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel 19. The Changing Chrome Relationship BetweenIndia and ChinaTill 2000 2001 to 2004 2005 to current The possible future Stainless SteelChina reaching halfEmergence of China as Dominance of China in Increased Dominance of million MT productionplayer of significanceglobal Stainless Steel China, Emergence of Indiain global Stainless Steelproduction : high growth in Stainless Steel production Increased production of Ferro Chrome No Ferro Chrome import byChina starts importing Ferro Chrome in China andHigher productionChina Ferro Chrome : 1st timeIndia. consumption & export ofimport rom India Quantum jump in Indias Ferro Chrome in India.share in Chinas import China secures Chrome Ore Chrome OreIndias production reached Restriction of Ore supply supplies through equityIndias production reaches stakes in Zimbabwe, South2 million MT 3 million MT with one third from India . China shifted to exported to China supply from other countries Africa etc. Furtherconsolidation : Cr Ore -FeCr - Stainless Steel19 Prabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel 20. INDIA POWERHOUSE IN FERRO ALLOYSPrabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel 21. CHROME - The Big 3 : SA, Kazakh, India SA and Kazakh with the worlds biggest reserves of chrome ore is struggling to maintain its supremacy in FeCr production. FeCr production in SA is clearly affected by the problems of power. Despite producing almost half the worlds Ferro chrome, its real growth has only been 12% during the current decade Kazakhstan is probably feeling threatened because it exports almost 40% of its material to China. Hence it is trying to invest into South African reserves and grow in strength Indian story has been quite significant in this context. With government support by way of restriction of chrome ore exports and captive power plants to reduce its dependence on power, the Indian ferro-chrome production has increased by a huge 98% during the current decade.21Prabhash GokarnPresentation to CAPXEIL Ferro Alloy Panel 22. India-A FeCr Production Power-house? Significant rise in its GDP growth and increased prosperity The SS production has increased keeping in step with the growing demand and need for SS products in India. Asia- the nerve centre for SS production. India well- placed to grab this advantage. Indian govts policy of restricting exports of chrome ore has provided the right business environment for FeCr producers.22 Prabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel 23. Ferro Chrome : India catching up with China1,6001,576 1,600 1,5001,476 1,450 1,450 1,500 1,4061,350 1,400 1,300 1,156 000 MT 1,2001,041 1,100 1,000900800 2009 2010 20112012 2013 China India China turned a net importer of HC Ferro Chrome from India since 2002, with a quantum jump in HC FeCr imports in last 2 years. Significant increase in FeCr production within India forecast, India will catch up with China by 2013.23Prabhash GokarnPresentation to CAPXEIL Ferro Alloy Panel 24. Indian Manganese Alloy Production 9951,200 In 000845*8591,000 MT738565800467 405 380378371600281256251 2324002000 HC Ferro Manganese Silico Manganese Production of Ferro Manganese has grown @ CAGR of 10% Production of Silico Manganese has grown @ CAGR of 17% Around 25% -30% is exported is there a potential to increase this ?24 Prabhash GokarnPresentation to CAPXEIL Ferro Alloy Panel 25. POWER SITUATIONGLOBALLYPrabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel 26. Overall Cost Of Power Increasing - Power Differentials falling Power is the 2nd most important requirement for FeCr production. India is still at a disadvantage compared to the power cost in SA and Kazakhstan. However, the gap between cost of power in SA and India has clearly reduced bridging the gap between production costs and making FeCr production in India very much sustainable.26 Prabhash GokarnPresentation to CAPXEIL Ferro Alloy Panel 27. POWER Low Power Generation Cost in India -Comparable to the World High Power Tariff due to :- Low Plant Load Factor inefficient generation-High Transmission & Distribution Losses -inefficient transmission -Cross Subsidies to Agriculture State wise variation in Electricity :availability, power tariff, power quality27Prabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel 28. POWER Positive Impact of On-going Power Reforms : - Captive Power Plants advantage of an alternate revenue stream. - Power Wheeling - - New Generation Capacities being set up - - Alternative Energy Sources apart from thermal : gas based, wind, nuclear CAPACITY ADDITIONS IN NEXT TWO YEARS (ESTIMATED) CAPTIVE POWER PLANTS (13 UNITS) 1000 MW28 Prabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel 29. POWER CRISIS IN CHINAPositive Impact On Indian Ferro Alloy Producers of Power Crisis In China :China biggest electricity producer & consumer in the worldChina has been facing regional power shortages since 2002(Liaoning, Jiangsu, Zhejiang, Guangdong provinces in particular)Lack of long-distance power transmission capacity no national grid, 6regional gridsChina needs to add new annual capacity of 48GW in a steady state growthmodelHigh dependence of China on Hydro-Power(30%)Northern areas experience shortages in winter due to increased heatingdemand & problems with coal deliveries.Eastern & southern areas are prone to shortages in late spring/early summeras temperatures & air-conditioning demand rise, while reservoir levels &hydro-electric output falls.China power tariff increases competitiveness of India increases.Opportunity of India to export ferro alloys in markets where China is till nowdominent.29Prabhash GokarnPresentation to CAPXEIL Ferro Alloy Panel 30. SOUTH AFRICAPOWER the State owned utility of South Africa, ESKOM.Electricity supply dominated byESKOM has a capacity of 35 200 MW from 20 power plants.ESKOM generates around 2/3rd of the electricity produced in the whole of AfricaEskom provides about 95% of South Africas electrical power Generation primarily coal-fired, One nuclear power station at Koeberg, Two gas turbinefacilities, Two conventional hydroelectric plants, and Two hydroelectric pumped-storagestations. In 2008 South African electricity demand exceeded supply capacity.Eskom increased tariff by about 30% and 20% recently, More importantly, all industries facepower restrictions including ferroalloy industry; limiting ability of South Africans to expandmarket share temporarily.Opportunity of India to consolidate position in global ferro alloystrade & seize the value-buildup opportunity!!30 Prabhash GokarnPresentation to CAPXEIL Ferro Alloy Panel 31. ADVANTAGE INDIAPrabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel 32. Advantage India * Large Capacity for Ferro Alloys Ability to * Industry currently operating at 60% of rated capacity immediately * New capacities coming up. Capacities coming up near scale up ports (Vizag, Haldia). Location near Freight advantage in markets such as China, Korea &high growthJapan compared to Ukraine or South Africaregions No seasonal effects Short sailing time, freight advantage* Domestically sourced LG & MG Mn Ore available for Cost blending with imported HG Mn Ore. Higher indigenousAdvantage ore availability compared to Chinese producers.over China* Comparable power, labour & inland freight costs toChina.32 33. KEY SUCCESS FACTORS FORINDIA AS A POWER HOUSE INFERRO ALLOYSPrabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel 34. Key Success Factors For Indian Ferro Alloy Industry Action Required / Changes TakingKey Issues Description Place India has limited availability Continue to allow free import ofof Medium to Low Grade MnAvailability ofHG Manganese OreOresHigh Grade Mn Indian Ore, sweetened with HG Indigenous Manganese OreOreMn Ore suitable for SiMngrade & quantity better than production.with China Import of low ash coking coal forCoking Coal &Ferro Alloy & BF Coke making in Indian coal has high ashLAM Coke India Exposure to availability &availability & Blending indigenous cokes withprice of LAM coke from Chinacost imported LAM coke for economic considerations Indian average power tariff at Power Sector reforms in place -Power similar level to China. allowing for Captive Power PlantsAvailability & Power shortages in summer & Power Wheeling.Power Costin Eastern India (hub of Ferro Increase grid power generation.Alloy production) 34Prabhash Gokarn Presentation to CAPXEIL Ferro Alloy Panel 35. Key Success Factors For Indian Ferro Alloy Industry Action Required / Changes Taking Key Issues Description Place Furnaces sizes start from Consolidation taking place with4MVAsignificant capacity expansion bySmall capacities, Almost 15%-20% capacity key players. inefficientunlikely to revive. Increasingly, capacities with operations Global furnaces moving to Captive Power Plants, Coal andhigher sizes. ore linkages. Inadequate roads, railway Encourage FDI for rapid Infrastructuralnetwork capacity & ports forinfrastructure development;Bottlenecks handling large scale oreSpecial Economic Zonesimports & ferro alloy exports Special Freight Corridors How Can CAPXEIL Help ?35Prabhash GokarnPresentation to CAPXEIL Ferro Alloy Panel 36. Can We Do It ?