NEW DELHI: Beginning second quarter, Odisha’s state-owned mining firm will e-auction chrome, an ore essential to make stainless steel.
By resorting to auctions, Orissa Mining Corporation is preempting a similar move for iron ore linkages, but more immediately addressing a long pending demand from its suppliers to address the high prices for chrome.
OMC is the primary supplier of chrome ore, which is almost solely mined within Odisha, home to 95-98% of the country’s estimated reserves of 66 million tonnes. Only Tata Steel, Balasore Alloys, FACOR and IMFA own chrome mines, leaving OMC as owner of two-thirds of the state’s deposits as the monopoly supplier of the raw material.
Chrome is converted into ferrochrome, which in turn is used for steel alloys like stainless steel.
Ferrochrome producers such as Jindal Stainless, Visa Steel, and Rohit Ferro Tech, who set up capacity in the eastern state on commitment of assured supply, have been forced to shut furnaces claiming OMC ore pricing was unviable. Some such as Nav Bharat Ferro Alloys, Aarti Steel have turned conversion agents for companies such as Tata Steel, and others such Jindal Stainless resorted to importing the alloy directly for downstream production, while keeping their own ferrochrome units idle.
“We have been very badly hit by this, and were forced to shut down our five ferrochrome furnaces for 5-6 months last year, and started importing ferrochrome instead from South Africa which turned out to be Rs 7,000-8,000 a tonne cheaper. But it is not very wise particularly in a backward tribal area to keep huge manpower idle for too long,” said Subash Singh Virdi, Executive Director responsible for Jindal Stainless’ Odisha business. Failing to resolve issues, the industry represented by the All Odisha Steel Federation (AOSF ) and Kalinga Nagar Industries Association (KNIA ), has sought redressal from the High Court at Cuttack, as well as the Competition Commission in the centre.
The differences have been over the pricing modalities adopted by OMC. As a practice, the firm would tender a sample lot, accounting for 2% of its total production, before the start of a quarter. It would then use the highest offer as benchmark, around Rs 15,000-16,000 per tonne last year, for its entire production over the next three months offered to empanelled members.
“For such units, OMC is the only supplier and OMC is exploiting their dominant and monopoly status in best possible manner. In the process, OMC is making super-natural profit which is almost 20 times of their raising cost of around 800 per tonne,” said P L Kandoi, President, KNIA
The user industry had complained that the tender was generally snapped up by players from Jammu, who enjoyed many other tax, excise incentives and reduced power tariffs ( 3 until recently against 5 in Odisha).
The industry says ferrochrome production is highly power intensive, requiring 4,000 units for a tonne. At that price ( Rs 15,000), the input costs were too high to bear for ferrochrome and stainless makers in Odisha in particular. Kandoi claims it will bleed industries to bankruptcy. The standoff led to the players not lifting any of OMC’s expensive ore during July-Sept 2011.
During the financial year, claims KNIA, OMC sold just 43% of the 5,20,000 tonnes offered. Planned downstream plants and expansion have also been put on hold. OMC chairman Manoj Ahuja, who also serves as the state’s Secretary for Steel and Mines said that the system for bidding could be in place before the next quarter. Odisha, which has been very proactive in fixing its mining sector, has been considering adopting the monitored online auction of iron ore in Karnataka, introduced under Supreme Court order while mining remains banned.
The industry had wanted OMC to go back to its pre-2007 practice of pricing chrome on the basis of sale price of state ferrochrome from state-owned IDCOL Ferro Chrome Alloys Ltd, or the price at which Steel Authority of India buys ferrochrome.