TAnalytical Report: Implications of Scrapping the Import Duty on Manganese Ore for Indian Ferroalloy Producers
Introduction: The Indian ferroalloy industry is a crucial contributor to the country's steel sector, serving both domestic and international markets with a diverse range of products, including ferro manganese, silico manganese, and ferrochrome. The Indian Ferro Alloys Producers Association (IFAPA) has recently called for the elimination of the 2.5 percent import duty on manganese ore, a move they argue is essential to maintaining competitiveness in the global ferroalloy market.
This report analyzes the potential impact of scrapping the import duty on manganese ore, considering the industry's export performance, raw material constraints, and comparative disadvantages related to production costs.
1. Current Scenario of the Indian Ferroalloy Industry:
- Production and Export Performance: In FY 2023-24, India produced approximately 3.5 million metric tons (mt) of manganese alloys (ferro and silico manganese), with exports amounting to 1.8 million mt, making India the largest global exporter of manganese alloys. Chrome alloy production in the same period stood at 1.5 million mt, of which 0.75 million mt was exported, making India the third-largest exporter of ferrochrome globally. The strong export performance underscores the industry's potential to contribute significantly to foreign exchange earnings and economic growth.
- Dependence on Imported Manganese Ore: Domestic production of high-grade manganese ore is limited, making it necessary for Indian ferroalloy producers to rely heavily on imports to meet their raw material requirements. The 2.5 percent import duty on manganese ore increases raw material costs, reducing the price competitiveness of Indian ferroalloy exports in the international market.
2. Rationale for Eliminating the Import Duty:
- Enhancing Export Competitiveness: With India being a leading exporter of manganese alloys and a significant player in the ferrochrome market, the removal of import duty would lower input costs, enabling Indian producers to offer more competitive prices globally. This would help the industry offset the disadvantages posed by high domestic power tariffs and other operational costs.
- Improving Capacity Utilization and Profit Margins: Reducing raw material costs would enhance the capacity utilization of Indian ferroalloy plants, as producers would be better positioned to meet global demand without being constrained by high input costs. Improved profitability could incentivize investments in technology and capacity expansions, leading to further growth in production and exports.
- Mitigating the Impact of Global Economic Uncertainties: The global ferroalloy market is influenced by fluctuations in demand from major economies like China, the U.S., and Europe. Lowering the import duty would provide Indian producers with a buffer to navigate these uncertainties more effectively and maintain stable export volumes.
3. Comparative Disadvantages in Production Costs:
- High Power Tariffs: Power costs account for a significant portion of ferroalloy production costs. Indian ferroalloy producers face higher electricity tariffs compared to other major exporting countries like South Africa, China, and Malaysia. Reducing import duties on manganese ore would help mitigate the impact of these high power costs, which currently hinder the industry's global competitiveness.
- Tariff Barriers on Key Raw Materials: The imposition of tariffs on key raw materials, such as manganese ore and chrome ore, adds an additional cost burden on Indian producers. Addressing these tariff barriers is crucial for the long-term viability and growth of the Indian ferroalloy industry, particularly as it seeks to expand its presence in high-growth markets like the Middle East, Southeast Asia, and Europe.
4. Policy Recommendations:
- Elimination of Import Duty on Manganese Ore: The government should consider scrapping the 2.5 percent import duty on manganese ore to enhance the competitiveness of Indian ferroalloy producers in the global market. This policy move would align with the government's broader objective of boosting industrial exports and supporting sectors with high foreign exchange generation potential.
- Review of Power Tariffs and Supportive Measures: A comprehensive review of power tariffs for energy-intensive industries like ferroalloys is needed to bring costs in line with global benchmarks. The government could explore the possibility of providing electricity at subsidized rates or incentivizing the use of renewable energy sources to reduce production costs.
5. Strategic Implications for the Indian Ferroalloy Industry:
- Scrapping the import duty on manganese ore would provide immediate relief to the ferroalloy industry, enhancing its cost competitiveness and enabling it to capitalize on opportunities in the global market.
- Improved profitability could drive investments in capacity expansions and technological advancements, further cementing India's position as a leading global supplier of ferroalloys.
- In the long run, addressing the industry's cost structure through favorable policies and supportive measures would position India to leverage its existing strengths and compete effectively with other major producers in the global market.
Conclusion: The Indian ferroalloy industry has established itself as a key player in the global market, but its growth is currently hampered by high input costs and tariff barriers. Scrapping the 2.5 percent import duty on manganese ore would provide a much-needed boost to the industry, enabling it to enhance its export competitiveness and contribute more significantly to the country's economic growth. With supportive policy interventions, the Indian ferroalloy industry can continue to thrive and strengthen its position as a global leader in the production and export of ferroalloys.
