Rise in benchmark prices which ultimately leads to an increase in ferrochrome prices will add significantly to Indian Metals and Ferro Alloys's margins in the fourth quarter, according to Managing Director Subhrakant Panda.
The increase that has just been announced for Q1 of the next calendar year or Q4FY17 is a whopping 55 cents. So, the benchmark will now stand at USD 1.65,” Panda said. Realisations in rupee terms will be noticeably higher than Rs 1 lakh per tonne, he said.
“And we expect it (the benchmark price) to stay at these levels for a certain time to come because the source of this increase really has been two-fold,” he said attributing the rise to Chinese demand and rising ore prices.
Below is the transcript of Shubrakant Panda’s interview to Ekta Batra and Prashant Nair on CNBC-TV18.
Ekta: What exactly have ferrochrome prices done in terms of an increase internationally for your realisations back home?
A: Ferrochrome, like most other commodities has also staged spectacular come back because earlier this year in April, the benchmark prices were around 82 cents per pound of chrome content and the increase that has just been announced for Q1 of the next calendar year or Q4 of the financial year is a whopping 55 cents. So, the benchmark will now stand at USD 1.65 for the January to March quarter of 2017. And we expect realisations in rupee terms to be noticeably higher than Rs 1 lakh per tonne. In fact, some were around Rs 1.15-1.20 lakh per tonne. So, that obviously adds significantly to margins.
Prashant: You are basically miners, right?
A: Yes, we are actually the largest full integrated producer of ferrochrome company. So, we mine our own chrome ore. We generate electricity because this is a power intensive product and of course, run the smelters to convert the ore into ferrochrome.
Prashant: And who are your biggest customers?
A: 90 percent of our topline comes from exports and in terms of destinations, we primarily focus on the far-east for obvious logistical advantages. And given that, that is where stainless steel production in the world is also concentrated, so largest customers include CostCo of South Korea, Yusco of Taiwan. We also have long-term contracts with Nisshin Steel in Japan and we sell significant quantities into China as well.
Prashant: So, as benchmark prices rise, you said that you have long-term contracts. So, the price would be fixed for a certain period. You can increase prices.
A: That is right. So just to explain how this system works is that when we say long-term contracts, what it basically means is that tonnages are finalised depending anywhere from one year to five years at a time. But, the prices are fixed every quarter. So if you look at the ongoing quarter which is of course, coming to an end, the real spurt in spot price increases in China happened after the prices for the current quarter had been fixed. So, the benchmark is now playing catch up with Chinese spot prices. And that is what has resulted in such a sharp increase. And we expect it to stay at these levels for certain time to come because the source of this increase really has been ttwo-fold One is sustained demand coming out of China, which as I mentioned, is really the driver for commodities. And secondly, ore prices have increased sharply and that contributes to the rise in the cost of production of non-integrated producers. So, just to give you an idea, ore prices out of South Africa have gone up by about USD 80 to close to USD 400 per tonne. In our case of course, there is no impact because we mine our own chrome ore.
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