Ferroalloys

Powerless in India ?

9 July 2013 / Prabhash Gokarn

1

National Conference on Energy Engineering,

Analysis, Audit & Management

Narula Institute of Technology

July 8-10, 2013

9 July 2013 / Prabhash Gokarn

The presentation is an amalgamation of author’s own views and

thoughts.

Tata Steel does not necessarily subscribe to the views and thoughts

expressed in the presentation and should not be held responsible for

the same.

Disclaimer

2

9 July 2013 / Prabhash Gokarn

Outline of Presentation

Sl No Content Slides

1 Basic Statistics 6

2 Power Generation : Sources 4

3 Power Demand Breakup 5 & 6

4 Power Generation in India 8 - 10

5 The Indian Ferroalloy Industry – Prospects 11 - 19

6 FerroAlloys – Importance of Power 20

6 Indian Power Shortage is Achilles Heel of the Ferroalloy Industry 21

7 Power Problems 22-28

8 Impact on the Indian Ferroalloy Industry 29

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9 July 2013 / Prabhash Gokarn

Annexures

Sl No Content Page

1 Inputs to Steel Making 33

2 Inputs to Steel Making – Cost 34

3 80% of Ferroalloys go into Steelmaking

35

4 Rising Proportion of Steel is Made in India 36

5 Steel Use & Economic Growth 37

6 Indian FerroAlloy Industry 38

4

9 July 2013 / Prabhash Gokarn

INDIAN ELECTRIC POWER

SITUATION

PART - 1

9 July 2013 / Prabhash Gokarn

Basic Statistics

India Power Situation :

Installed capacity : 1.37 GW in Aug1947

: 156 GW in Jan 2010

: 257 GW in Jan 2013

Current Average growth in electricity demand

: 10% CAGR

India is world’s 5th largest electricity producer

Per capita energy consumption : 778 kWh (2013)

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9 July 2013 / Prabhash Gokarn

Electricity Statistics

Sector MW %age

State Sector 86,343.35 40.77

Central Sector 62,963.63 29.73

Private Sector 62,459.24 29.49

Total 2,11,766.22

Fuel MW %age

Total Thermal 141713.68 66.91

Coal 121,610.88 57.42

Gas 18,903.05 8.92

Oil 1,199.75 0.56

Hydro (Renewable) 39,416.40 18.61

Nuclear 4,780.00 2.25

RES** (MNRE) 25,856.14 12.20

Total 2,11,766.22 100.00

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9 July 2013 / Prabhash Gokarn

Power Generation : Sources

Captive, 32, 12%

Utility, 225, 88%

Captive & Utility

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9 July 2013 / Prabhash Gokarn

Power Demand

• India's industrial demand accounted for 35% of electrical power

requirement, domestic household use accounted for 28%, agriculture 21%,

commercial 9%, public lighting and other miscellaneous applications

accounted for the rest.

• The electrical energy demand for 2016–17 is expected to be at least 1392

Tera Watt Hours, with a peak electric demand of 218 GW.

• The electrical energy demand for 2021–22 is expected to be at least 1915

Tera Watt Hours, with a peak electric demand of 298 GW.

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9 July 2013 / Prabhash Gokarn

Power Demand Break up

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Industrial 35%

Domestic Household

28%

Agriculture

21%

Public Lighting

9%

Others 7%

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Power Generation in India is Growing

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Power in India is mostly coal based

9 July 2013 / Prabhash Gokarn

Why Power Demand is Rising Fast

• India's manufacturing sector is growing faster than in the past

• Domestic demand is increasing rapidly as the quality of life for most

Indians improve

• About 125,000 villages are getting connected to India's electricity grid

• Currently blackouts and load shedding artificially suppresses demand;

could this be soon a thing of the past?

Source : Powering India: The Road to 2017". McKinsey. 2008.

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9 July 2013 / Prabhash Gokarn

FERROALLOY INDUSTRY

IN INDIA

PART - 2

9 July 2013 / Prabhash Gokarn

Ferroalloys

• Used for manufacture of all steels and accounts for 8%(for plain carbon steel) to 30%(for stainless steel) of steel making cost.

• Ferroalloys are used in the production of steel (as deoxidants, for refining and for alloying).

• The principal functions of alloying steel is for increasing its resistance to corrosion and oxidation, improving hardenability, tensile strength, high temperature properties (such as creep strength), wear and abrasion resistance, etc.

• Bulk Ferroalloys (viz. Ferro Manganese, Ferro Silico Manganese, Ferro Silicon, Ferro Chrome, etc., manufactured through Submerged Arc furnaces).

• Ferroalloy manufacturing is power intensive

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9 July 2013 / Prabhash Gokarn

Ferroalloy Manufacture needs Electricity

Sl No Ferro Alloy Electricity Needed

1 FerroChrome 4300 kWh/MT

2 Ferro Manganese 2800 kWh/MT

3 Silico Manganese 4200 kWh/MT

4 Ferro Silicon 9000 kWh/MT

…and lots of it!!

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9 July 2013 / Prabhash Gokarn

Indian Ferroalloy Industry

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Indian Ferroalloy Industry : Growing At Over 12% CAGR

9 July 2013 / Prabhash Gokarn 19

Exports from India Growing over 20% CAGR

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Significant Growth in Domestic Demand for Ferroalloys

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Leading to Projected Increase in Ferroalloy Production

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1 Ability to immediately scale up :

•Large Capacity for Ferroalloys

•Industry currently operating at 60% of rated capacity

•New capacities coming up - near ports (Vizag, Haldia).

2 Location near high growth regions:

•Freight advantage in markets such as China, Korea and Japan compared to

Ukraine, Kazakhstan and South Africa

•Short sailing time, freight advantage

3 Cost Advantages over China:

•Domestically sourced LG & MG Mn Ore available for blending with imported HG

Mn Ore.

•Power, labour and inland freight costs comparable to China.

Ferroalloy Industry : Advantage India (1)

9 July 2013 / Prabhash Gokarn 23

Ferroalloy Industry : Advantage India (2)

4. Backward linkage to Ore:

Chrome Ore - Indigenous Chrome ore of high grade quality available

Manganese Ore – Low and medium grade Manganese ores abundantly available

but need to be sweetened by import of high ore.

5 Reductants :

Coke : Increasing use of indigenous coke/coal for ferro alloy making has helped

the industry to mitigate the high cost of imported LAM Coke. Slowing GDP growth

in China has prompted the Chinese government to withdraw Export Tax on Coke.

6 Rising domestic consumption of ferroalloys :

The projected ~8% growth in carbon steel and ~10% growth in stainless steel

production augurs well for the ferroalloy industry in India.

9 July 2013 / Prabhash Gokarn 24

Ferroalloy Industry : Importance of Power

9 July 2013 / Prabhash Gokarn

IMPACT OF THE

INDIAN POWER SHORTAGE

PART - 3

9 July 2013 / Prabhash Gokarn

Indian Power Shortage is Achilles Heel of the Ferroalloy Industry

• Power Shortage due to lower generation

• Non - Availability of Thermal Coal resulting in further shortage

• The Electric Transmission Grid is Collapsing

• Rising prices of fossile fuels – inevitable rise in power cost : will ferroalloy

industry remain profitable ?

• Nuclear Power in India – Controversial

• Transmission & Distribution Losses – who pays ?

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POWER SHORTAGE

India to see 6.7% shortage this fiscal

• In 2012-13, the energy shortfall touched 8.7 per cent while peak shortage

reached 9 per cent.

• Overall, energy shortfall is expected to be 70,232 million units, resulting in

a deficit of 6.7 per cent this fiscal.

• The requirement would be 10,48,533 million units whereas the availability

is pegged at 9,78,301 million units.

• Transmission constraints between Northern-North Eastern-Eastern-

Western - Southern Regional Grid restricts flow of power.

• The strains on India’s electricity network brutally exposed last summer

when the grid collapsed for the best part of two days across north India -

the world’s biggest power cut.

9 July 2013 / Prabhash Gokarn

306.2

82.4

66.6

63.9

38.2

India

Nigeria

Bangladesh

Congo

Tanzania

POWER SHORTAGE

People Without Access To Electricity, Mn

Source : FT 31-May-13

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9 July 2013 / Prabhash Gokarn 29

POWER SHORTAGE

Non - Availability of Thermal Coal

• Thermal Coal supply by Coal India severely restricted – mines not expanded

in time to take care of explosion in demand from the power sector.

• Overpricing of coal & poor coal quality of coal supplied by Coal India

• Mine stoppages due to flooding etc lead to severe seasonal shortages.

• Imported coal from Indonesia – rising coat and decreased availability.

Restrictions on foreign ownership of coal mines & export of thermal coal –

how long will the party last?

• 60% of power generated in India comes from burning coal. Isn’t over

dependence on thermal coal for power a dangerous situation?

• Many delayed projects due to lack of coal ….

9 July 2013 / Prabhash Gokarn 30

Delayed Indian Industrial Projects

Source : FT 31-May-13

Power 51%

Metals 20%

Roads 18%

Oil & Gas 7%

Mining 3%

Others 1%

Where is the coal?

9 July 2013 / Prabhash Gokarn

• Despite abundant reserves of coal, India faces a severe shortage of coal - India

isn't producing enough to feed its power plants.

• Coal India, is constrained by primitive mining techniques and is rife with theft

and corruption; Coal India has consistently missed production targets and

growth targets.

• Poor coal transport infrastructure has worsened these problems.

• Most of India's coal lies under protected forests or designated tribal lands. Any

mining activity or land acquisition for infrastructure in these coal-rich areas of

India, has been rife with political demonstrations, social activism and public

interest litigations.

Coal Problems ....

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9 July 2013 / Prabhash Gokarn

• Poor pipeline connectivity and infrastructure to harness India's abundant coal

bed methane and shale gas potential.

• The giant new offshore natural gas field has delivered less fuel than projected.

India faces a shortage of natural gas.

• Hydroelectric power projects in India's mountainous north and northeast regions

have been slowed down by ecological, environmental and rehabilitation

controversies, coupled with public interest litigations.

• India's nuclear power generation potential has been stymied by political activism

since the Fukushima disaster in Japan.

• Average transmission, distribution and consumer-level losses exceeding 30%

which includes auxiliary power consumption of thermal power stations, etc.

Other Problems of the Power Sector

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9 July 2013 / Prabhash Gokarn

Power has the greatest impact on FerroAlloy Production Cost

…..and India has the highest power cost

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9 July 2013 / Prabhash Gokarn

THE POWERLESS

FERROALLOY INDUSTRY OF

INDIA

PART - 4

9 July 2013 / Prabhash Gokarn 35

Ferroalloy Industry – Powerless in India?

Power Cuts Reduces Production

– increases cost

UNEMPLOYMENT

9 July 2013 / Prabhash Gokarn

Ways Out

• Renewal Power Generation : Wind, Solar, Tidal : Power generation from

renewable sources worldwide will exceed that from gas and be twice that from

nuclear by 2016

• Hydraulic fracturing technology and shale gas production – applications in

India?

• Coal Bed Methane and power from low rank coals, semi coals etc.

• Energy Conservation : better technology, more efficient furnaces, reduction in

transmission losses

36

Pillars of Energy

Management

Renewable energy

Energy Conservation

Planning Awareness & Capacity Building

36

9 July 2013 / Prabhash Gokarn 37

is there light at the end of the tunnel?

9 July 2013 / Prabhash Gokarn

ANNEXURES

PART - 5

9 July 2013 / Prabhash Gokarn

Annexures

Sl No Content Page

1 Inputs to Steel Making 33

2 Inputs to Steel Making – Cost 34

3 80% of Ferroalloys go into Steelmaking

35

4 Rising Proportion of Steel is Made in India 36

5 Steel Use & Economic Growth 37

6 Indian FerroAlloy Industry 38

39

9 July 2013 / Prabhash Gokarn

Inputs to Steel Making

40

9 July 2013 / Prabhash Gokarn

Inputs to Steel Making - Cost

41

9 July 2013 / Prabhash Gokarn

80% of Ferroalloys go into Steelmaking

42

9 July 2013 / Prabhash Gokarn

Rising Proportion of Steel is Made in India

43

9 July 2013 / Prabhash Gokarn

Steel Use & Economic Growth

44

9 July 2013 / Prabhash Gokarn 45

Indian FerroAlloy Industry

9 July 2013 / Prabhash Gokarn 4

6

Investment in Sustainable Energy

46

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7

Investment in Low Carbon Growth

47

9 July 2013 / Prabhash Gokarn 48