Squeezed between high costs of raw materials and low prices for finished products, Indian stainless steel producers have cut operating capacity by 20 percentage points so far this year. From 55-60 per cent until last year, they are currently operating with 45-50 per cent of installed capacity.

The industry, with large players such as Salem Steel Plant, Jindal Stainless and DRG has created around five million tonnes (mt) of production capacity. But due to poor demand from domestic infrastructure and the kitchenware segment, total output of both the 400 series (for industrial applications) and 200-300 series (utensil making) is set to be at 2.5 mt. Last year, total production in India was around two mt.

“This means 45 per cent of installed capacity remained idle. In contrast, cheap dumping of various stainless steel products from China, Taiwan and Korea continued, which has made production from domestic sources economically unviable,” said N C Mathur, president, the Indian Stainless Steel Development Association (ISSDA).

The price of ferro chrome, the only raw material for producing stainless steel, has risen at an average by 15 per cent so far this year. Another ingredient, electricity, has become equally costlier. Rising imports at cheaper rates than the cost of domestic production have made business tough for producers. According to a leading player, Indian producers have been incurring a loss of around 10 per cent of  the stainless steel price.

“The whole industry is under severe stress. The industry has borrowed around Rs 20,000 crore from banks and financial institutions. Servicing of this debt has become difficult now,” said Mathur.

The scenario is equally critical for ferro chrome producers, said Subhrakant Panda, managing director, Indian Metals and Ferro Alloys Ltd, and president of the International Chromium Development Association (ICDA).

China has snapped the leading position from South Africa in terms of ferro chrome production, resulting in higher stainless steel output. High carbon ferro chrome output during 2012 reached 8.95 mt with China securing the prime position by producing 3.1 mt. While overall production has remained stagnant since 2010, there have been interchanges with China making up for lower production in South Africa. Indian output, meanwhile, has flirted with the one mt mark. Demand for ferro chrome is expected to be marginally higher this year, in line with stainless steel production. Demand has, meanwhile, plunged due to lower fresh investment on infrastructure. Around 70 per cent of stainless steel output goes for industrial use, while the remaining  30 per cent is the kitchenware segment. Going ahead, any sign of the US economy reviving is important. An economy of that size growing at even two-three per cent will have a significant positive impact on white goods consumption, construction, etc, which bodes well for the ferro chrome industry, Panda added.

India exports around half of its chrome ore (mineral used for ferro chrome production). Making this worse, the government levied 2.5 per cent import duty on stainless steel scrap, which the industry urged the Finance Minister P Chidambaram to roll back.

Chrome ore mining is monopolised by the public sector Orissa Mining Corp, which sells the mineral through auctions at the price decided by market forces.