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.

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.