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Expects profit in Q4 of FY21 and Q1 of
current fiscal
Indian Metals & Ferro Alloys Ltd (IMFA)
expects a surge in profitability in the fourth quarter of FY21 and the first
quarter of the current financial year due a spike in ferro chrome prices.
The Odisha-based ₹1,600-crore ferro chrome
manufacturer’s profits increased by nearly seven times during the third quarter
ended December 31, 2020 at ₹32 crore compared with ₹4 crore in the same period
last year following a steady rise in ferro chrome prices.
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Ferro chrome prices, which were ruling
around ₹60,000-65,000 a tonne in September last year, increased to as high as
₹95,000 a tonne in January. The increase in prices in the fourth quarter would
augur well for the company, which is an integrated producer of ferro chrome,
said Prem Khandelwal, CFO & CS, IMFA.
“The demand for ferro chrome has been very
good and the prices have been on an upswing. Infact, prices even touched as
high as ₹1 lakh a tonne and have currently stabilised at around ₹95,000 a
tonne. Any increase in ferro chrome prices will directly improve our bottomline,”
Khandelwal told BusinessLine.
Ferro chrome is used in the production of
stainless steel.
Chrome ore shortage
Ferro chrome prices have been firming up
steadily on the back of reduced raw material supply and in anticipation of a
pick-up in demand from the stainless steel industry. Production of chrome ore,
which goes into making ferro chrome, was impacted due to Covid-induced
lockdown, thereby pushing up prices.
Globally, the total chrome ore production
was close to 34.3 million tonne (mt) in calendar year 2019. South Africa
accounts for nearly 60 per cent of the global chrome ore production at around
20 mt while India produces around four mt. Production of chrome ore in South
Africa during the first nine months of the calendar year 2020 was down 32 per
cent while the same in India was down by nearly 50 per cent.
South Africa also accounts for nearly 70
per cent of global ferro chrome exports. While it previously used to convert
most of its chrome ore into ferro chrome and export it, the increasing cost of
electricity has impacted their ferro chrome production.
“Small furnaces in China have closed down
due to increase in power prices so there is an overall shortage of chrome ore,”
he said.
If the power tariffs in China and South
Africa continue to remain at the current levels then prices may stabilise at
these levels and augur well for companies like IMFA.
“We will see the entire advantage of the
price increase in the fourth quarter of last fiscal and the first quarter of
current fiscal as prices jumped by nearly ₹20,000 a tonne in January,” he said.
Ramping up production
IMFA, which has a total capacity of 2,84,000
tonnes, is looking to add another one lakh tonne in the next three-four years.
The company is hopeful of getting land allotment in the next six months and
plans to start work on the project by the end of this year or early next.
The estimated investment on the project is
at ₹500 crore and would be funded partly by internal accruals and partly by
debt.
Nearly 90 per cent of its total production
is currently exported to the Far East countries including China, Japan and
Taiwan. It has long standing relationships with multi-nationals like POSCO of
South Korea, Marubeni Corporation and Nisshin Steel of Japan and leading
stainless steel producers in China and Taiwan.
The company expects the share of domestic
market to increase to around 20-30 per cent, up from the current 10 per cent,
backed by an increase in consumption of stainless steel. In India, Jindal
Stainless and Shah Alloys are some of its leading customers.