Higher ore prices act as a dampener for ferro alloys makers

High chrome ore prices in the domestic market have come as dampener for ferro chrome manufacturers, especially those running plants without a captive lease. As standalone players largely source the ore from the state-run Odisha Mining Corporation (OMC), the steep floor price has deterred buyers.

At the previous round of e-auctions on July 26, OMC offered 95,270 tonnes of varying grades of chrome ore with an average floor price of Rs 8,138 per tonne. Of the offered quantity, 55,180 tonnes were left unsold, mirroring tepid interest from buyers.

The grouse of ferro alloys producers is with the "unrealistic" discovery of a reserve price by OMC.

"OMC has over a period established a mechanism of setting a floor price for auction, deriving it from the export price of chrome ore/chrome concentrate. The objective is to have a floor price close to the market. However, inter-company transactions should not be treated as a fair market transaction, as this could have been done with various strategic intents," said an industry source. Ferro alloy manufacturers feel OMC's formula of back-calculating from the free-on-board price to fix floor price is unrealistic. Instead, they suggest it consider the bid price quoted by MMTC through its wholly-owned subsidiary, MTPL (MMTC Transnational), which represents the true market price.

Another issue highlighted by manufacturers is that OMC includes Rs 1,050 per tonne towards logistics cost and port handling charges while back-calculating the floor price.

"Had OMC followed the actual market price, it could have eased the floor price by 15-20 per cent. If OMC does not arrive at a realistic floor price, its inventory would go up and ferro chrome makers would be prompted to go for capacity curtailment," said a producer.

The other concern for ferro alloys makers is the price of high-grade chrome ore (with chromium content of 50 per cent and above), which finds application only in refractories and cannot be used in ferro chrome production. For OMC, the solution lies in pro-rating the prices of all grades of chrome ore from the base grade (48-50 per cent).

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