ICRA highlighted that the profit margins of the domestic manganese-based ferro alloy industry jumped to a record high in FY2022. However, the momentum has fizzled out in the current fiscal, as declining realisations, along with input cost pressures have squeezed margins to abnormally low levels. According to ICRA's latest note (Link), manganese-based domestic ferro alloy prices corrected by ~35% between April and December of 2022, and consequently, operating profit margins of the industry[1] nosedived to 8% in Q3 FY2023 from a high-watermark of 40% recorded in Q3 FY2022.

Commenting on the industry trend, Mr. Jayanta Roy, Senior Vice-President & Group Head, Corporate Sector Ratings, ICRA said, "Easing of Covid restrictions in China helped improve market sentiments in the world's largest producer and consumer of steel, leading to domestic ferro-manganese prices increasing by around 7.5% in Q4 FY2023 till date. However, a disproportionately high increase in input costs has eroded most of the realisation gains witnessed so far. Therefore, the industry profit margin is likely to remain under pressure in Q4 FY2023 as well."
Manganese ore, power, and coke are the key cost drivers in the production of manganese-based ferro alloys accounting for ~35-40%, ~20-30%, and ~10-15% of the overall cost respectively. With coal prices remaining at elevated levels, power tariffs in key producing regions in West Bengal and Andhra Pradesh have risen by ~20% year-on-year (YoY) in FY2023. For producers who have captive power generation facilities, the fuel cost is expected to witness an even steeper increase of ~40% YoY in FY2023 due to the coal price increase. These sharp increases in energy costs have adversely impacted the industry's cost competitiveness. On the other hand, a structural disadvantage for the domestic manganese-based ferro alloy industry is the high import dependence on high-grade manganese ore. Imported manganese ore prices have rallied by ~30% in Q4 FY2023 till date, which, along with the increase in spot met coke prices by ~16% since mid-January 2023, is expected to keep profit margins under strain in the next few quarters unless the external demand environment improves materially, leading to a further increase in ferro alloy prices.

In the global context, India is the world's second largest producer of manganese-based ferro alloys, and also its largest exporter globally. Notwithstanding falling steel production globally, exports of Indian manganese-based ferro alloys have surprisingly remained strong in the current fiscal. Commenting on this trend, Mr. Roy added: "Indian mills have benefitted from the supply disruption from Ukraine, which used to be the world's second largest exporter of manganese-based ferro alloys. After growing by 59.3% YoY in FY2022, Indian export of manganese-based ferro alloys further increased by 4.0% in 9M FY2023 as domestic producers filled up the vacuum left by Ukraine."


Domestic manganese-based ferro alloy players' profit margins are unlikely to improve significantly in the near term as input costs remain high: ICRA

Posted On : 2023-03-09 13:56:51( TIMEZONE : IST )